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Cryptocurrency
Surface Web/Deep Web/Dark Web
How to Get Data?
Where Hacking, Cyber Fraud, and Money Laundering Intersect
How to Pay? Digital Currency
Bitcoin Price
Bitcoin Price Jan 2017 ~$1000, July 2017 = $2460, Jan 2018 =$13412
Where do I get Bitcoins?
Bitcoins can be acquired through mining, purchasing on Exchanges, ATMs, and by purchase directly from sellers.
Bitcoin Addresses• A Bitcoin address is an
identifier of 26-35 alphanumeric characters beginning with the number 1 or 3, that represents a possible destination for a bitcoin payment.
Bitcoin Wallet• A Wallet is a Collection of security Keys and Addresses.
• Address is a public key, Wallet holds the private keys
• Hot Wallet is a wallet that is stored on a computer connected to the internet.
• Cold Wallet is a wallet that is not connected to the internet.
Hardware Wallet is a wallet that can be removed and connected to a computer to store bitcoins.
Paper Wallet is a printout of the private keys and addresses of a wallet (not internet connected).
Who invented Bitcoin?
• Bitcoin was invented in 2009 with the publication of a paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System” written under the Alias of Satoshi Nakamoto.
• Bitcoin was a combination of several prior digital currencies such as b-money and HashCash
• Main difference is that Bitcoin uses a distributed computation system called “proof of work” to conduct a global election approximately every 10 minutes to allow the network to arrive at a consensus about the state of transactions.
Bitcoin in 5 minutes
• https://youtu.be/l9jOJk30eQs
Issues with Virtual Currency
• There were many different virtual currencies before bitcoin, but they all had these primary issues.
1. Can I trust the money is authentic and not counterfeit?
2. Can I be sure that no one else can claim the money belongs to them and not me?
Encryption and Prime Numbers• In order to understand how Bitcoin and other Cryptocurrencies
work it is important to have some understanding of Encryption and how it works.
• If you don’t understand how encryption works that’s okay, but you at least need to have faith in the fact that it is mathematically infeasible to hack or break encryption without inside information or private keys.
• If you don’t believe in the above, here is my Bitcoin wallet. Try to hack it.
• 1JSm6X8zZYsC1iWp1oh5CxjMREaeAZBUed
Public Key/Private Key• Public Keys and Private Keys work together to ensure security. • Public Key is like giving a lock to anyone who wants it, the lock
can be used to secure anything, the corresponding private key is needed to open the lock
Key Components of Bitcoin
• Decentralized peer-to-peer network (Bitcoin Protocol –no central oversight)
• A public transaction ledger (blockchain)
• A decentralized mathematical and deterministic currency issuance (distributed mining)
• A decentralized transaction verification system (Transaction Script)
How Transactions Work• A wallet address is given to the sender.
Sender enters the amount of currency to send The password is
entered Transaction is sent to
the network.
Transaction Outputs• A transaction is output in the form of a script that creates an
encumbrance on the value and can only be redeemed by the introduction of a solution to the script.
• The output is payable to whoever can present a signature from the key corresponding to the public address. Because only the receiver has the wallet to present the public key, they are the only person who can present a signature to redeem it. The funds are secured using the recievers Public Key (lock) and can only be spent once they are unlocked with the Private Key.
• Since only the receiver has the private key, once transferred, access to send/spend the funds resides with the receiver.
How Transactions Work
• The Funds Transfer is distributed to the Bitcoin network.
How Transactions Work
• Miners on the network collect transactions and put them into blocks.
Confirming Blocks
• Once the block is confirmed by other miners the block is added to the block chain.
Confirmations• As soon as a transaction is sent out it is marked as unconfirmed. • Unconfirmed transactions are sent out to the network but have
not yet been included in the bitcoin transaction ledger (Blockchain).
To be included in the blockchain, the transaction must be “picked up” by a miner and included in a block of transactions.
The transaction is seen by all instantly, but is only trusted when included in a newly mined block.
Adding to the Blockchain• Blocks are added by miners who hash the inputs until a specific
hash solution is reached. The solution has a specific number of leading 0s depending on the mining difficulty.
Randomness of Mining
• The SHA-256 algorithm takes an input string and transforms it into a 256 bit length Hash.
• SHA-256 was developed by NSA and is not hackable based on current technology
• Hashes are a way to verify authenticity because they produce the same result every time and are unique to each unique file.
• http://www.xorbin.com/tools/sha256-hash-calculator
• 2^256 =1.157920 E77 possible outcomes• 115,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,0
00,000,000,000,000,000 possible outcomes
Difficulty of Blocks
• To solve a block, essentially the Mining computer uses the SHA-256 Hashing algorithm on the inputs to obtain a string with a particular number of leading zeros.
• 000000000000000000dad6d19240284ec2224c62871889f9a3f486b4a4b7e952
• Block 480060
Mining Bitcoins• A good way to describe mining is like a giant competitive game
of Sudoku that resets everytime someone finds a solution and whos difficulty automatically adjusts so that it takes approximately 10 minutes to solve.
The following Sudoku can be verified very quickly, but it takes significantly longer to solve with only a few boxes filled in. Just like the Bitcoin Blockchain hard to solve, easy to verify.
Blockchain.info
Sample Transaction
What does a block look like?
• https://blockchain.info/block/0000000000000000006d1fba28e2f1fb7cb31db93b5cd57bc76c696234766871
What does a block look like?
Credit Card vs. Bitcoin Transactions
Money Laundering Concerns• Allows for greater anonymity than traditional non-
cash payment methods• Bitcoin does not require or provide identification or
verification of participants• Does not generate historical records of transactions
that are associated to a real world identity• No central oversight body to monitor transactions• Global reach instantly
Summary
• Bitcoin is a decentralized peer-to-peer network. There is no central authority, there is no singular point of failure or point for bad actors to attack.
• Bitcoin uses a public transaction ledger which records all transactions and allows everyone to view the prior transactions.
• A decentralized mathematical and deterministic currency issuance (distributed mining). New currency is issued methodically based on merit and work completed.
• A decentralized transaction verification system. Transactions are signed and submitted to the network for approval and verification.
Other Virtual Currencies
• There are atleast 1441 other different virtual currencies each with their own protocol, and variations.
• Coinmarketcap.com • Litecoin-faster than bitcoin to transact, new block every 2.5 minutes (Silver to
bitcoin’s Gold)• Ethereum-Platform that allows development of other blockchains and virtual
currencies (Centralized)• Bitcoin Cash- split off of bitcoin, supports more transactions per block, lower fees. • Zcash-bitcoin with hidden sender, recipient and amount• Ripple-centralized blockchain for businesses, very fast.
Other Virtual Currencies
• Most of the other currencies operate very similarly to Bitcoin. • Centralization can be a difference• Amount of Currency issued and issuance rules• Block time (speed of blocks)• Hashing algorithm
TAXES this is not advice
• Bitcoin mining income is recorded as income as it is earned and is ordinary income.• Previously in 2017 virtual currency may have been eligible for the like kind exchange provision of
the tax code section 1031, this allowed exchange of virtual currency for another virtual currency without a recognizing a taxable event.
• Tax revisions made in 2018 clarify that the like kind exchange treatment is not acceptable with cryptocurrency. Transactions are treated as a taxable events.
• Income from the purchase and sale of virtual currency is subject to reporting as capital gains. Short term <365 days is treated as ordinary income, long term >365 days is a long term capital gain.
References
• Mastering Bitcoin, by Andreas Antonopoulos• Coindesk.com• Coinmarketcap.com• Blockchain.info• Walletexplorer.com• Coinomi Wallet• Youtube
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