Bitcoin and Cryptocurrency Technologies

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Going back to our example, suppose the price of the teapot has gone up from 8 bitcoins to 8.5 bitcoins. Alice can no longer find a set of unspent outputs that she can combine to produce the exact change needed for the teapot. Instead, Alice exploits the fact that transactions can have multiple outputs, as shown in Figure 6.3. One of the outputs is the store’s payment address and the other is a “change” address owned by herself. Now consider this transaction from the viewpoint of an adversary. They can deduce that the two input addresses belong to the same user. They might further suspect that one of the output addresses also belongs to that same user, but has no way to know for sure which one that is. The fact that the 0.5 output is smaller doesn’t mean that it’s the change address. Alice might have 10,000 bitcoins sitting in a transaction, and she might spend 8.5 bitcoins on the teapot and send the remaining 9,991.5 bitcoins back to herself. In that scenario the bigger output is in fact the change address. Figure 6.3: Change address. To pay for the teapot, Alice has to create a transaction with one output that goes to the merchant and another output that sends change back to herself. A somewhat better guess is that if the teapot had cost only 0.5 bitcoins, then Alice wouldn’t have had to create a transaction with two different inputs, since either the 3 bitcoin input or the 6 bitcoin input would have been sufficient by itself. But the effectiveness of this type of heuristic depends entirely on the implementation details of commonly used wallet software. There’s nothing preventing wallets (or users) from combining transactions even when not strictly necessary. Idioms of use.Implementation details of this sort are called “idioms of use”. In 2013, a group of researchers found an idiom of use that was true of most wallet software, and led to a powerful heuristic for identifying change addresses. Specifically, they found that wallets typically generate a fresh address whenever a change address is required. Because of this idiom of use, change addresses are generally addresses that have never before appeared in the block chain. Non-change outputs, on 172
the other hand, are often not new addresses and may have appeared previously in the block chain. An adversary can use this knowledge to distinguish change addresses and link them with the input addresses. Exploiting idioms of use can be error prone. The fact that change addresses are fresh addresses just happens to be a feature of wallet software. It was true in 2013 when the researchers tested it. Maybe it’s still true, but maybe it’s not. Users may choose to override this default behavior. Most importantly, an adversary who is aware of this technique can easily evade it. Even in 2013, the researchers found that it produced a lot of false positives, in which they ended up clustering together addresses that didn’t actually belong to the same entity. They reported that they needed significant manual oversight and intervention to prune the false positives. Figure 6.4: Clustering of addresses. In the 2013 paper A Fistful of Bitcoins: Characterizing Payments Among Men with No Names,researchers combined the shared-spending heuristic and the fresh-change-address heuristic to cluster Bitcoin addresses. The sizes of these circles represent the quantity of money flowing into those clusters, and each edge represents a transaction. Attaching real-world identities to clusters. In Figure 6.4. we see how Meiklejohn et al. clustered Bitcoin addresses using basic idioms of use as heuristics. But the graph is not labeled — we haven’t 173
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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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Ideally, the site will encrypt thos
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seen exchanges that fail due to bre
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Figure 4.5: Proof of liabilities.
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crypto and we won’t cover it here
Page 121 and 122: Figure 4.8: Payment process involvi
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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 165 and 166: Chapter 6: Bitcoin and Anonymity
Page 167 and 168: Unlinkability. To understand unl
Page 169 and 170: eason is that use cases that we cla
Page 171: But this reveals something. The tra
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
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Page 213 and 214: The text refers to “activities in
Page 215 and 216: A book that looks at the history of
Page 217 and 218: It’s easy to see how Bitcoin’s
Page 219 and 220: Why might memory‐hard and memory
Page 221 and 222: 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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