Bitcoin and Cryptocurrency Technologies

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Further reading An excellent paper on the evolution of mining hardware: Taylor, Michael Bedford. Bitcoin and the age of bespoke Silicon. Proceedings of the 2013 International Conference on Compilers, Architectures and Synthesis for Embedded Systems. IEEE Press, 2013. A paper discussing some aspects of running a Bitcoin mining center including cooling costs: Kampl, Alex. Analysis of Large‐Scale Bitcoin Mining Operations. White paper, Allied Control, 2014. The “systematization of knowledge” paper on Bitcoin and cryptocurrencies, especially Section III on Stability: Bonneau, Joseph, Andrew Miller, Jeremy Clark, Arvind Narayanan, Joshua A. Kroll, and Edward W. Felten. Research Perspectives and Challenges for Bitcoin and Cryptocurrencies. Proceedings of 2015 IEEE Security and Privacy Conference, 2015. A comprehensive 2011 paper analyzing different reward systems for pooled mining (some of the information is a bit out of date, but overall it’s still a good resource): Rosenfeld, Meni. Analysis of bitcoin pooled mining reward systems. arXiv preprint arXiv:1112.4980 (2011). Several papers that analyze mining strategy: Eyal, Ittay, and Emin Gün Sirer. Majority is not enough: Bitcoin mining is vulnerable. Financial Cryptography and Data Security. Springer Berlin Heidelberg, 2014. Kroll, Joshua A., Ian C. Davey, and Edward W. Felten. The economics of Bitcoin mining, or Bitcoin in the presence of adversaries. Proceedings of WEIS. Vol. 2013. Eyal, Ittay. The Miner's Dilemma. Proceedings of 2015 IEEE Security and Privacy Conference, 2015. 164
Chapter 6: Bitcoin and Anonymity “Bitcoin is a secure and anonymous digital currency” — WikiLeaks donations page “Bitcoin won't hide you from the NSA's prying eyes” — Wired UK One of the most controversial things about Bitcoin is its supposed anonymity. First, is Bitcoin anonymous? As you can see from the mutually contradictory quotes above, there’s some confusion about this. Second, do we wanta cryptocurrency that is truly anonymous? There are pros and cons of anonymity, which leads to some basic questions: is having an anonymous cryptocurrency beneficial for the stakeholders? Is it good for society? Is there a way to isolate the positive aspects of anonymity while doing away with the negative parts? These questions are hard because they depend in part on one’s ethical values. We won’t answer them in this chapter, though we will examine arguments for and against anonymity. Mostly we’ll stick to studying various technologies — some already present in Bitcoin and others that have been proposed to be added to it — that aim to increase Bitcoin’s anonymity. We’ll also look at proposals for alternative cryptocurrencies that have different anonymity properties from Bitcoin. These technologies raise new questions: How well do they work? How difficult would they be to adopt? What are the tradeoffs to be made in adopting them? 6.1 Anonymity Basics Defining anonymity. Before we can properly discuss whether (or to what extent) Bitcoin is anonymous, we need to define anonymity. We must understand what exactly we mean by anonymity, and the relationship between anonymity and similar terms, such as privacy. At a literal level, anonymous means “without a name.” When we try to apply this definition to Bitcoin, there are two possible interpretations: interacting without using your real name, or interacting without using any name at all. These two interpretations lead to very different conclusions as to whether Bitcoin is anonymous. Bitcoin addresses are hashes of public keys. You don't need to use your real name in order to interact with the system, but you do use your public key hash as your identity. Thus, by the first interpretation, Bitcoin is anonymous as you do not use your real name. However, by the second interpretation, it is not; the address that you use is a pseudo-identity. In the language of computer science, this middle ground of using an identity that is not your real name is called pseudonymity. 165
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Bitcoin and Cryptocurrency Technolo
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Preface — The Long Road to Bitcoi
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work, there is also the issue of co
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Finally, CyberCash has the dubious
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This was the first serious digital
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and so on — powers of two. That w
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Figure 3 shows the user side of the
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initial cost to acquire all the equ
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the system is to record the relativ
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original design. However, after Bit
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A final reason that’s often cited
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Chapter 1: Introduction to Cryptogr
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Figure 1.2 Because the number of
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Property 2: Hiding The second pr
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ecome: ● ● Hiding: Given H(
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SHA‐256 uses a compression functi
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Figure 1.5 Block chain.A block c
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Figure 1.7 Merkle tree. In a Mer
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throughout this book. 1.3 Digital S
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Figure 1.9 Unforgeability game.
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andomness just in making a signatur
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1.5 A Simple Cryptocurrency Now let
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The first key idea is that a design
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Figure 1.13 A PayCoins Transa
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Perusing the NIST standard that def
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Chapter 2: How Bitcoin Achieves Dec
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state of the system. The implicatio
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consensus is somewhat pessimistic,
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Implicit Consensus. This assumpt
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Figure 2.2 A double spend attempt.
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In general, the more confirmations
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Figure 2.4 The block reward is c
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puzzle‐friendliness property from
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possible outcomes, and the probabil
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theory problem that’s not easily
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this interlocking interdependence b
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Further reading The Bitcoin whitepa
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Chapter 3: Mechanics of Bitcoin Thi
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In this example, Alice specifies tw
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3.2 Bitcoin Scripts Each transactio
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the Bitcoin language and one has to
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exactly the same script, which is i
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in the normal case, this isn’t th
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Technically all of these transactio
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The header mostly contains informat
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in turn sends it to all of its peer
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Figure 3.10 Block propagation ti
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that actually affect them. So they
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that the old version would accept a
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Exercises 1. Transaction validation
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Chapter 4: How to Store and Use Bit
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software can automatically turn the
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The cryptographic magic that makes
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may never know (or care) who the co
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Given this stringent requirement, s
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There is a formula called Lagrange
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Page 117 and 118: Figure 4.5: Proof of liabilities.
Page 119 and 120: crypto and we won’t cover it here
Page 121 and 122: Figure 4.8: Payment process involvi
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Page 125 and 126: of U.S. dollars per day pass throug
Page 127 and 128: Now if you look at a particular sec
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Page 131 and 132: Chapter 5: Bitcoin Mining This chap
Page 133 and 134: In most cases you'll try every sing
Page 135 and 136: You can see in Figure 5.3 that over
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Page 141 and 142: Disadvantages of GPU mining. GPU
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Page 145 and 146: Figure 5.10: Evolution of mining
Page 147 and 148: Hopefully, over time the embodied e
Page 149 and 150: Still, if we could replace Bitcoin
Page 151 and 152: Figure 5.11: Illustration of uncert
Page 153 and 154: Figure 5.13: Mining rewards. Thr
Page 155 and 156: Some mining hardware even supports
Page 157 and 158: By April 2015, the situation looks
Page 159 and 160: Figure 5.15 Forking attack.A mal
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Page 167 and 168: Unlinkability. To understand unl
Page 169 and 170: eason is that use cases that we cla
Page 171 and 172: But this reveals something. The tra
Page 173 and 174: the other hand, are often not new a
Page 175 and 176: Figure 6.5. Labeled clusters.
Page 177 and 178: Luckily, this is a problem of commu
Page 179 and 180: they are unhappy with anonymity pro
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Page 183 and 184: Somebody looking at this transactio
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Page 187 and 188: just minting one doesn’t automati
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Page 191 and 192: We start with Bitcoin itself, which
Page 193 and 194: An alternative design to Zerocoin i
Page 195 and 196: elieve the same thing. So consensus
Page 197 and 198: of developers who maintain Bitcoin
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Page 201 and 202: eing effectively bankrupt. As of ea
Page 203 and 204: In an important sense it doesn't ma
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A book that looks at the history of
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It’s easy to see how Bitcoin’s
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Why might memory‐hard and memory
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Until recently, it wasn’t known i
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meaning the exponential growth peri
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Next, consider the problem that SET
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In Permacoin, each miner Msto
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Interestingly, these concerns have
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they can perform the signatures on
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schemes also require a small amount
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to provide an effective solution, t
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Chapter 9: Bitcoin as a Platform In
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means that if you actuallydo
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CommitCoin exploits this property.
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features without needing to change
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would just look like a dollar bill.
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you. In particular, you can’t use
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To solve this problem we can once a
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NBA draft lottery.One example th
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that there’s no way for anyone to
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to predict the low‐level fluctuat
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design, because miners have to veri
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Here's another example, this time f
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You can also trade shares for futur
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Order books.The final piece o
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Chapter 10: Altcoins and the Crypto
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Attracting miners has special impor
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with the launch date of the altcoin
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Namecoin is technically interesting
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10.3 Relationship Between Bitcoin a
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Switching costs are certainly not z
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If our altcoin is merge‐mined, we
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When we think about a rational mine
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DepositA [Altcoin block chain] Refu
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Sidechains. The sidechains vision i
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lock themselves could tell us. This
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written in bytecode and executed by
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Bitcoin. In particular, there are c
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The simple binary Merkle tree used
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Chapter 11: Decentralized Instituti
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Bitcoin, Alice can remotely transfe
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only these signatures of limited fo
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11.3 Template for Decentralization
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Sidebar: trust.Some people in th
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competition among intermediaries. P
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To drive home the mismatch between
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Conclusion to the book Some people
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