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BITCOINS 2
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