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6/30/2015Bitcoins1Bitcoin

Group No. 23CSD-329 Seminar B.Tech CSE, sixth semester, 2015Computer Science & Engineering DepartmentNational Institute of Technology, Hamirpur, (HP)23-04-2015Bitcoin6/30/2015Bitcoin2OutlineAbstract (Introduction)BasicsDetailed Explanation of the systemCase StudyObservationsSuggestionsReferences

6/30/2015Bitcoins3Adapted FromIs Bitcoin a Decentralized Currency?.By Arthur Gervais, Ghassan O. Karame, Vedran apkun and Srdjan apkun.Page(s): 54 60, Published in: Security & Privacy, IEEE (Volume:12 , Issue: 3)DOI:10.1109/MSP.2014.496/30/2015Bitcoins4Paper Detail followed byAuthor NameYear of PublicationTitleObservationsSatoshi Nakamoto2009Bitcoin: A Peer-to-Peer Electronic Cash SystemOriginal Paper on Bitcoin NetworkEver Wished?Wished if coffee shops accepted online payment through mobile?Wished if you never had to face the problem of not bringing the change when you buy coffee?Wished you didnt have to stand in the long queues in front of ATMs?Something like PayPal but better than that.Wished if there is some currency which is not solely controlled by the government?Wished is there was some currency system which was accepted globally?

6/30/2015Bitcoins6AbstractBitcoin has achieved popularity by promising users a fully decentralized, low-cost virtual currency system. However, a limited set of entities controls Bitcoins services, decision-making, mining, and incident resolution processes. These entities can decide Bitcoins fate, bypassing the will of the multitude of users that populate the network.6/30/2015Bitcoins7Motive of BitcoinImplementing various techniques of Computer Science in the Financial Sector and help people live better.6/30/2015Bitcoins8CategoriesDistributed Databases NetworkingParallel ComputingCryptographyCloud ComputingArtificial IntelligenceMicroprocessorsIntegrated Circuits

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6/30/2015Bitcoins10Distributed DatabasesTransactions are verified by network nodes and recorded in a public distributed ledger called the block chain.The block chain is a distributed database; in order to independently verify the chain of ownership of any and every bitcoin (amount), each network node stores its own copy of the block chain.6/30/2015Bitcoins11

11NetworkingDecentralized peer-to-peer (P2P) network.Network Nodes can validate transactions, add them to their copy of the ledger, and then broadcast these ledger additions to other nodes.In order to validate and relay transactions, bitcoin requires more than a network of miners processing transactions, itmust broadcast messages across a network using these nodes.6/30/2015Bitcoins12

6/30/2015Bitcoins13Parallel ComputingMining is a record-keeping service by Miners.Miners help maintain the bitcoin network by verifying transactions. They do this by checking the security credentials of the transactions and the balances.Same style as database recovers from logs when crashes.Miners play a crucial role in the bitcoin ecosystem.They do this in parallel. So, parallel computing.6/30/2015Bitcoins14

Cryptography6/30/2015Bitcoins15Bitcoin is often called the first CryptoCurrencyOften youll see bitcoin addresses represented as QR codes or random strings.In a block chain, a block is a cryptographic hash of the previous block, thereby creating Block chains by hashing.A transaction must have one or more inputs and are digitally signed by appropriate cryptographic hash functions.

BITCOINSVirtual CurrencyInfinitely DivisiblePeer 2 PeerAnonymityDecentralized SystemOpen Source PlatformRobust Security

6/30/2015Bitcoins16WalletsWeb Wallets.

Desktop Wallets.

Mobile Wallets. 6/30/2015Bitcoins17

LEDGER IS A DIGITAL FILE THAT LISTS ACCOUNTS AND MONEYEVERY NODE KEEPS A COPY OF THE FILE

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DIFFERENCE BETWEEN BANK AND BITCOIN SYSTEM

EVERYONE KNOWS EVERYONE ELSE TRANSACTIONSNO TRUST REQUIRED

6/30/2015Bitcoins19Job of MinersThey verify transactions.Record them in a new block using SHA (Secure Hash Algorithm)-256 algorithm. With time mining difficulty increases.But how do they verify?

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Trapdoor FunctionA trapdoor function is a function that is easy to compute in one direction, yet difficult to compute in the opposite direction (finding its inverse) without special information, called the "trapdoor.

6/30/2015Bitcoins21Elliptic Curve Digital Signature Algorithm (ECDSA)

Private key: A secret number, known only to the person that generated it. A private key is essentially a randomly generated number. In Bitcoin, someone with the private key that corresponds to funds on the public ledger can spend the funds. In Bitcoin, a private key is a single unsigned 256 bit integer (32 bytes). Public key: A number that corresponds to a private key, but does not need to be kept secret. A public key can be calculated from a private key, but not vice versa. A public key can be used to determine if a signature is genuine (in other words, produced with the proper key) without requiring the private key to be divulged.Digital Signature: A number that proves that a signing operation took place. A signature is mathematically generated from a hash of something to be signed, plus a private key. With the public key, a mathematical algorithm can be used on the signature to determine that it was originally produced from the hash and the private key, without needing to know the private key.

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Signature = f(private key, message)Verify = f(signature, message, public key)Note:Since signature depends on the message every transaction will have a different signature6/30/2015Bitcoins24

Transaction ChainOWNERSHIP OF BITCOINS PASSED ALONG IN A CHAIN

6/30/2015Bitcoins25Cannot Implement Time Stamp because network propagation delays.

When installing bitcoin software for first time all transactions are verified all the way to the very first transaction.Every input is verified to check whether it has been used before to avoid double spending.Index of unspent transactions are used to speed up the process.

6/30/2015Bitcoins26DOUBLE SPENDING FRAUD

6/30/2015Bitcoins27BLOCK CHAIN

NOTE:Block chain references transaction orderingTransaction chain references history of ownership6/30/2015Bitcoins28

Deciding next block to be appended is difficult. Order of arrival cannot be used since it arrives at different orders at different points in the network. 6/30/2015Bitcoins29Proof Of - WorkA new block created must contain a so-called proof-of-work as a blocks header.The proof of work consists of Time Stamp, Difficulty Target, Nonce (number used only once).Miners have to find a nonce that yields a hash of the new block numerically smaller than the difficulty target.The fact that the hash of the new block is smaller than the difficulty target serves as a proof for other nodes, so the name Proof of Work.6/30/2015Bitcoins30

An average computer may take years to solve the block puzzle. Computation is usually done in pools of MinersMiners are rewarded with newly generated Bitcoins.

6/30/2015Bitcoins31ChallengeConfirmationWhen you send money to somebody, the transaction needs to be confirmed before they are absolutely sure they got the bitcoin. For small amounts, one confirmation is usually sufficient. For large amounts, the general practice is to wait for 6 confirmations.6/30/2015Bitcoins32

Problem StatementIs Bitcoin truly decentralized?However, a limited set of entities controls Bitcoins services, decision-making, mining, and incident resolution processes.This paper mainly focuses on the various aspects which decide the complete decentralization of Bitcoin.6/30/2015Bitcoins33Mining Pools Control EverythingBecause block mining in Bitcoin is rewarded with BTCs, its become a competitive process.If these pools colluded to acquire more than 50 % of computing power share, they could effectively control all transactions.6/30/2015Bitcoins34

IssueTo guarantee miners regular pay-outs, a central mining pool combines their computing power and coordinates participants mining activities.As described, this could possibly lead to preventing certain transactions execution, approving a specific set of transactions, or approving double-spending transactions etc.6/30/2015Bitcoins35SolutionWhereas most mining pool protocols have a logically centralized operator that orchestrates the block generation process, several fully decentralized mining pools are emerging.Such pools share the benefit of centralized pools because all participating users get regular pay-outs that reflect their contribution to block generation.And these pools dont require a centralized coordinator and operate in a completely decentralized fashion.6/30/2015Bitcoins36Developers Control EverythingBitcoins core developers have the authority to modify Bitcoin protocol. According to the Bitcoin Github repository, all radical decisions require consensus among all the developers. 6/30/2015Bitcoins37IssueFor example, in Bitcoin clientversion 0.8.2, the developers unilaterally decided to lower the default fee for low-priority transactions from 0.0005 BTC to 0.0001 BTC. This empowers the developers to regulate the entire Bitcoin economy.

6/30/2015Bitcoins38SolutionDevelopers must resolve conflicts. This process must be completely transparent and should be tightly regulated to avoid abusing users trust and minimize unilateral interventions.Developers need to justify their modifications made in the newer versions to convince the users.6/30/2015Bitcoins39ObservationsBy AzamObserved the scope of Bitcoin network and what all factors affect its sustenance. One Possible Drawback is -Huge Power consumption.Although we understand that the processing power of the devices has been increased in an exponential rate in accordance with Moores law, nothing much has been done to reduce the degree of exploitation of those resources.They just try to make the best use of ICs, but at the cost of a lot of Power Consumption.

6/30/2015Bitcoins40ObservationsBy ZadDELAYED TRANSACTION CONFIRMATION

Transactions take approximately 10 minutes to get verified.If more number of verifications are required, then it takes more time to get verified.6/30/2015Bitcoins41ACCIDENTAL LOSS OF BITCOINSISSUEbitomat, the third largest bitcoin exchange, recently lost about $200K worth of Bitcoins.SOLUTIONSUSE OF SUB-WALLETS A small amount of Bitcoins can be transferred into other wallets in smartphones which can be used for daily transactions. If his mini wallets are lost only a small portion of the money is lost.CREATE PERIODIC BACKUPSUSING MULTIPLE PASSWORDS Create multiple difficulty passwords for tasks depending upon the magnitude of transactions.6/30/2015Bitcoins42ZOMBIE COINSISSUEUsers are encouraged to use different public keys for each transaction. a private key should only be deleted if one is certain that no payment to its public key will ever be made. Payments made to unaccounted public keys will lead to zombie coinsSOLUTIONExpiration dates can be explicitly set to public keys such that no money can be send to expired keys.

6/30/2015Bitcoins43ConclusionAlthough Bitcoin originally aimed to be fully decentralized, recent events revealed the limits of decentralization in this system. Many centralized services host Bitcoin and control a considerable share of the Bitcoin market. Even worse, Bitcoin developers retain privileged rights in conflict resolution and maintenance of the official client version. Together, these entities can decide the Bitcoin systems fate, bypassing the will, rights, and computing power of the multitude of users on the network.6/30/2015Bitcoins44Source Code

6/30/2015Bitcoins45ReferencesS. Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System, 2009; https://bitcoin.org/bitcoin.pdf.2. J. Garzik, [Bitcoin-Development] Revisiting the BIPS Process, Mail Archive, 21 Oct. 2013; https://www.mailarchive. com/bitcoin-development@lists.sourceforge. net/msg02982.html.3. E. Androulaki et al., Evaluating User Privacy in Bitcoin, Financial Cryptography and Data Security, LNCS 7859, Springer, 2013; http://eprint.iacr.org/2012/596.pdf.4. F. Reid and M. Harrigan, An Analysis of Anonymity in the Bitcoin System, Security and Privacy in Social Networks, Y. Altshuler et al., eds., Springer, 2013, pp. 197223.6/30/2015Bitcoins46