bitcoin

Bitcoin - Decentralised Open-Source Peer-to-Peer

Cryptocurrency

Bogdan Suvar, David Gureya

Instituto Superior Tecnico

{bogdan.suvar, david.gureya}@ist.utl.pt

December 9, 2013

Bogdan Suvar, David Gureya (EMDC) Bitcoin December 9, 2013 1 / 19

Overview

1 IntroductionMotivationBackground

2 ProtocolWalletTransactionsBlocksNetwork

3 Advantages and Disadvantages

4 Alternative Cryptocurrencies


Outline

1 IntroductionMotivationBackgroundWalletTransactionsBlocksNetwork


Motivation

Popular P2P and first cryptocurrency

Pseudonimity and Anonymity (with Tor)

Decentralised

Limitations and vulnerabilities

Alternatives


http://blockchain.info/nodes-globe?series=onlineNow

http://blockchain.info/ip-log

Motivation

Figure: Interest by Google searches over the past 3 years


Motivation

Figure: Regional interest from Google queries for bitcoin


Background

Proof Of Work systemsChallenge-response CPU-bound computation. Initially used for DOS,spam

Asymmetric cryptographyUsed for transactions. Transactions represent bitcoins. Private keysare used to sign transactions, public keys are used for destination

Cryptographic hash functionsGenerate a hash that starts with a certain number of 0s (difficulty).Easy to validate, hard to find


Outline

MotivationBackground

2 ProtocolWalletTransactionsBlocksNetwork


Wallet

Contents

keypairs for each of the addresses

transactions done to/from

key pool

default keys

user preferences

accounts

Security

Physical: paper, hardware

Back-up

Password

One wallet per installation


Transactions

Definition

A signed part of data that is broadcasted to the network and collected intoblocks. It references a previous transaction and a certain number ofbitcoins to (one or more) public key(s).

How it works

1 Digitally sign:

output of the previous transactionrecipient’s public key hashvalue (satoshi’s)

2 Broadcast it on the network

3 Wait to be included in a block ( 10 minutes)

4 Add block of transactions to the ledger


Blocks

Definition

The blocks permanently record all the Bitcoin transactions on the network- similar to a ledger. New blocks are added at the end of the record, to ablock chain

Contents

List of transactions

Nonce (see POW)

Header

Mining

Generate a new hash of the block header + nonce until the right one wasfound. Reward = 25 BTC and it halves every 4 years. A new block iscreated every 10 minutes.


Network Overview

Communication via TCP

Ports: default 8333, but CLI configurable

IPv6 support

Node bootstraping:1 Send messages to a hardcoded list of nodes (seed nodes)2 (default) DNS request to a list of hostnames

Heartbeat: keepalive message every 30 min; connection closes after90 min


Node Discovery

Node steps:

1 Discover their external IP address (via dyndns.org or showmyip.com)

2 Receive callback addresses of nodes that connect to them

3 DNS requests for IP addresses

4 Use the ”seed” (hardcoded) addresses

5 Exchange addresses with other nodes

6 Store (timestamped) addresses in a database for startup

7 Enter new, custom, addresses from the command line

8 Read addresses from user provided text file on startup


Address request handling

Upong receiving a node’s request for addresses:

1 Count all the addresses in the past 3 hours

2 If there are more than 2500, select the first 2500 randomly

3 Return addresses to the requestor


Vulnerabilities


Vulnerabilities

SniffingNo encryption, since all transaction data is visible to all nodes.Attacker could monitor all incoming and outgoing data and latertarget specific users.


Vulnerabilities

SniffingNo encryption, since all transaction data is visible to all nodes.Attacker could monitor all incoming and outgoing data and latertarget specific users.DoS attackModerate protection exists: Client accepts only Transaction messages.Malicious node may use Transaction messages for DoS - costs a lot ofcoins. Result: the node could be disconnected from the network orhamper other trans. to be sent.


Vulnerabilities

SniffingNo encryption, since all transaction data is visible to all nodes.Attacker could monitor all incoming and outgoing data and latertarget specific users.DoS attackModerate protection exists: Client accepts only Transaction messages.Malicious node may use Transaction messages for DoS - costs a lot ofcoins. Result: the node could be disconnected from the network orhamper other trans. to be sent.SegmentationNodes handle disputes on data integerity. Transactions could appearconfirmed in one segment then, upon joining the other segment, beinvalidated.


Vulnerabilities

SniffingNo encryption, since all transaction data is visible to all nodes.Attacker could monitor all incoming and outgoing data and latertarget specific users.DoS attackModerate protection exists: Client accepts only Transaction messages.Malicious node may use Transaction messages for DoS - costs a lot ofcoins. Result: the node could be disconnected from the network orhamper other trans. to be sent.SegmentationNodes handle disputes on data integerity. Transactions could appearconfirmed in one segment then, upon joining the other segment, beinvalidated.51% AttacksComputationally unfeasible: attacker must have 51% more computingpower than all the other miners combined. Reason: control blockhistory.


Scalability

Transactions

Visa: avg. 2000 tps, peak: 4k tps; holiday: avg 8k tps; burst>10kPaypall: avg. 46 tps, peak: 100 tps;Bitcoin (today): (artificially) limited to 7 tps

CPU

Node verifies (SHA256) a trans. which it doesn’t have. Hashing 1MBtakes 10 miliseconds = 4k tps achievable in mainstream CPUs (i7s) [3]

Network

For 2k tps, trans.= 0.5 kb;((2k * 512)/1024)/1024 = 0.97MBs (7.8Mbps)

Storage

Blocks can be over 0.5 GB for high tps. Pruning is possible.


Outline

MotivationBackgroundWalletTransactionsBlocksNetwork

3 Advantages and Disadvantages


Advantages


Advantages

Computationally unfeasible to abuse/cheat


Advantages


Highly flexible protocol (script modification)


Advantages



Descentralised


Advantages



Descentralised

Incetivised availability


Advantages



Descentralised

Incetivised availability

Open-source


Disadvantages


Disadvantages

1 Too transparent


Disadvantages

1 Too transparent

2 Limited supply of bitcoins


Disadvantages

1 Too transparent


3 Scalability (storage limitations)


Disadvantages

1 Too transparent



4 Useless mining


Disadvantages

1 Too transparent



4 Useless mining

5 Fluctuating evaluation


Disadvantages

1 Too transparent



4 Useless mining


6 Benefiting early adopters/investors in specialised hardware


Disadvantages

1 Too transparent



4 Useless mining



7 Redemption of lost bitcoins


Disadvantages

1 Too transparent



4 Useless mining




8 Susceptible to criminal usage (Silk Road)


Disadvantages

1 Too transparent



4 Useless mining




8 Susceptible to criminal usage (Silk Road)

9 Slow transaction times (mining)


Outline

MotivationBackgroundWalletTransactionsBlocksNetwork

4 Alternative Cryptocurrencies


Alternatives

Currency POWCurrency

Units

Block

Every...

Difficulty

Adjustment

Initial

Reward

Mkt.

Cap.Distinguishing features

Bitcoin SHA-256d 21M 10 min 2016 50 10B First cryptocurrency created 2009

Litecoin scrypt 84M 2.5 min 2016 50 238M Faster transactions, memory-hard mining

Peercoin SHA-256+POS 2B 1 min 45M Proof of stake, steady inflation, centralized checkpoint

Namecoin SHA-256d 21M 10 min 2016 50 19.5M descentralized DNS (.bit TLDs)

Primecoin Cunningham 10 min 1 999diff 2 7M

Useful mining, Smooth difficulty adjustmentFast confirmations, Self-adjusting block reward


References

Satoshi Nakamoto (2008)

Bitcoin: A peer-to-peer electronic cash system

Piotr Piasecki (2012)

Design and security analysis of Bitcoin infrastructure using application deployed onGoogle App Engine

Technical University of Gdansk

Bitcoin Wiki(2013)

Bitcoin - Scalability

Karl Whelan (2013)

So What’s So Special About Bitcoin?

Forbes

Vitalkin Buterin (2013)

Primecoin: The cryptocurrency whose mining is actually useful

Bitcoin Magazine


Questions ?


bitcoin

Technology

addresses transactions

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