bitcoins project paper

8/13/2019 Bitcoins Project Paper

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BITCOINS

And the Issues Related with them

Introduction

What are Bitcoins?

Bitcoin is a crypto currency, the laws if transferring of which are controlled

by an open source cryptographic protocol. They are digital currency and

the major way in which they are different from other currencies is that they

have no centralised controlling unit, i.e. no one country has or organisation


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has complete control over the evaluation, transfer or trade of bitcoins. It is a

peer-to-peer electronic cash system and are stored by associating an

address with them known as wallet.

History of Bitcoins

The concept of Bitcoins was first proposed over a paper on the internet in

November 2008, by Satoshi Nakamoto, pseudonymous developer. In

January 2009, the bitcoin network came into existence with the issuance of

the first bitcoins. The value of each bitcoin at the time of its launch was less

than $0.01.

The value of a bitcoin reached parity with the US dollar in march 2011 and

by the beginning of 2013, each bitcoin was approximately valued at around

15$ and currently its worth in excess of 600$.

*here we write stuff about the regulatory issues of bitcoins and also silk

route


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How do Bitcoins work?

Each user is given a bitcoin address which they can use to purchase

bitcoins from bitcoin client and also for making transactions from one user

to another. Once bitcoins have been purchased, they are stored in the

digitalwalletof the user. A wallet has both a public key and a private key.

Any transaction from the wallet can only be authorised using a private key.

However, depositing bitcoins into another ones wallet requires only their

public key. Since there is no central authority that checks every transaction,

to avoid the problem of double spending, the earliest transaction is the one

that counts and the transactions must be publicly announced.


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Bitcoins simplified

Theres a room that anyone can access. The room has security cameras

that anyone can view, and every second of recorded footage is available

online forever.

The room is filled with indestructible piggy banks made of transparent

plastic. Naturally, these piggy banks have coin slots, and everyone can see

which coins are in which piggy bank. These piggy banks can never leave

the room.

Each person has a key that can open their piggy bank. Let s say I want to

buy a pair of alpaca socks, and you want to sell them.

First, you tell me which piggy bank is yours. Then, I walk into the room with

a ski mask on. Anyone in the world can see me on the security cameras,

but not my face.

Next, I unlock my piggy bank, take some coins out and then put them into

your locked piggy bank. I leave the room.


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Now, everyone in the world knows that your piggy bank has coins that were

previously in my piggy bank. This is the case with every transaction, so

everyone knows the history of every coin. [1]

Mining of Bitcoins

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Technology Issues

To understand the major issues faced by the bitcoin

structure, and seek out any possible solutions to these

issues, we must understand that the whole working of the

bitcoin as an organization is done via the internet. Hence

for this very reason most of the technology issues faced

by bitcoins are related to cyber security. Some of the

major issues which we discovered and could suggest


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viable solutions to, have been enlisted below and a

detailed explanation of both the issue and solution will

follow:

1. WalletVulnerability: The Wallets of users are storedwithout encryption and hence the bitcoins present in

them are vulnerable to be stolen by an attacker.

2. Traceability: Tracing a bitcoins history can facilitate an attacker to get the

information of its previous owners, thus compromising the anonymity of the

previous owners of that bitcoin.

3. Lack of Governance: As previously stated, there is no arbitrator or moderator

present to ensure that both parties involved in a bitcoin transaction have

completed the deal fairly, hence in case of disputes the lack of an arbitratorposes a great issue.

4. Lack of Security: Cybercrime is a threat to the smooth functioning of bitcoin as

techniques used in cybercrimes such as packet sniffing and clogging up the

network affect the transaction of bitcoins adversely.

5. Malicious MinersNexus: A cabal of expert miners might form a coalition and

take advantage of the system used to generate bitcoins and mine bitcoins

without publishing the results, hence making a profit by cheating the system.

ADD MORE from this site:

https://en.bitcoin.it/wiki/Weaknesses
https://en.bitcoin.it/wiki/Weaknesseshttps://en.bitcoin.it/wiki/Weaknesses


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Traceability

The most marketed advantage of bitcoins is the

anonymity of its users. The process of mining and carrying

out transactions using bitcoins is structured so that its

users are completely anonymous. This however is a utopic

outlook; as analyzing the bitcoin world has lead us to the

conclusion that bitcoins are really anonymous only if one

personally mines them. The way bitcoin transactions

function has been stated before and here we would like to

add to it. Every bitcoin transaction is carried out via a

bitcoin exchange and hence every transaction is recorded

in the logs of the exchange that is used for the transaction.

Once a bitcoin is transferred from one wallet to the other, it

is forever associated with the wallet its been placed in,


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which means that the bitcoin effectively does carry some

crucial information of the wallet of the user. Hence an

attacker can match the address of the user to his identity

by tracing the information associated with a certain bitcoin.

Gaining access to the identity of a bitcoin user beats the

whole purpose of the anonymity feature of bitcoins.

This issue has forced users to start paying extra for newly mined bitcoins,

hence reducing the probability of their identities being made public.

SOLUTION

Tracing the information associated with a bitcoin is not as easy as it

sounds. It is a painstakingly lengthy and time consuming task. Hence the

most effective way of reducing the disadvantages caused by this issue is to

make transactions through multiple loops. What this means is if user A

wants to make a payment for some product that is being sold by user B, A

uses multiple loops to deposit the bitcoins into Bswallet. Using multiple

loops means that more information gets associated with the bitcoin, hence

making the process of tracing the bitcoin even more difficult. This method


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gives this added advantage as opposed to A directly transferring the

bitcoins to Bswallet as the information linked with the bitcoin would then

be lesser and hence easier to trace.

Lack of Governance

The bitcoin transactions that works on

the peer-to-peer protocols is completely

based on the trust between its users.

Analyzing the working of bitcoins we

realized that trust between the users of

bitcoins plays a vital role. This is due to


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the fact that bitcoins does not make use

of any arbitrator or mediator. Unlike

typical bank or credit card transactions,

in which the user is given 100% fraud

protection by the bank in case of any

fraudulent charges, the bitcoin network

lacks any governance. This means that

incase a fraud does occur, for example

if a user makes the deposit of certain

agreed upon bitcoins into another users

wallet in exchange of goods, but does


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not receive those goods, he cannot

challenge and/or revert the transaction.

All bitcoin transactions are irreversible

and they do not have an arbitrator like a

bank/government to ensure the

authenticity of the transaction. Hence

bitcoin transactions are wholly based on

the trust factor, making the lack of

governance a major issue.

SOLUTION


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While considering the solution to this

issue we felt that the anonymity factor

must be protected. Hence we suggest

that a feature that lets the users opt in

for an anonymous arbitrator be made

available to the users. This feature

would provide a random anonymous

arbitrator to a certain transaction once

both users agree to use one. Its the

responsibility of the arbitrator to then


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ensure that a smooth and fair

transaction takes place. The reward for

the arbitrator would be a percentage, in

bitcoins, of the transaction he arbitrates

payable by both the parties involved in

the transaction. This suggestion offers a

solution to the lack of governance

without compromising on the anonymity

factor.

Lack of Security


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Since the entire bitcoin industry

functions via the internet, all the cyber

threats related to the internet are

inherent in the bitcoin network. The

existing bitcoin infrastructure does

provide some amount of protection from

these threats and hence we would like

to discuss the lack of security feature

that specifically affect bitcoins.

Ideally bitcoin transactions are meant to

be carried out using the bitcoin address


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by the user, but if bitcoin transactions

are done via IP address, the transaction

is susceptible to man-in-middleattacks

and the security of the users can be

compromised. What this means is, if an

attacker is monitoring a certain part of

the network and the activities of certain

IP addresses (which are public and

available to anyone that has access to

the internet), and a bitcoin transaction


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is taking place using the IP address, the

attacker can easily tap into the

transaction and hence effectively steal

the bitcoins during the transaction.

Another cyber security related issue

arises if/when a user is using an

unprotected and/or public network to

make transactions. Attackers can make

use of tools like packet sniffing to gain

information from the transaction that a

user undertakes thereby aiding the


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process of tracing a bitcoin or making a

wallet vulnerable.

SOLUTIONS

The security issue caused due to the

use of IP address has already been

resolved. The bitcoin exchanges have

now disabled the option of letting a

transaction take place via IP address

hence making it mandatory for the

users to use their wallet address.


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Packet sniffing is used at particular

nodes in the network and by using this

tool the attacker can gain valuable

information about the transactions

being carried out using those nodes.

Hence to ensure that bitcoin

transactions are carried out safely the

nodes can be encrypted thereby

providing the much needed security to

the users.

Malicious MinersNexus


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I will complete this part on Monday?

--Who are you red guy???

Proposed Solutions

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Conclusion

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Citations

[1]http://www.quora.com/Bitcoin/How-would-you-explain-bitcoins-to-a-five-

year-old
http://www.quora.com/Bitcoin/How-would-you-explain-bitcoins-to-a-five-year-oldhttp://www.quora.com/Bitcoin/How-would-you-explain-bitcoins-to-a-five-year-oldhttp://www.quora.com/Bitcoin/How-would-you-explain-bitcoins-to-a-five-year-oldhttp://www.quora.com/Bitcoin/How-would-you-explain-bitcoins-to-a-five-year-old


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References

bitcoins project paper

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