Bitcoin and Cryptocurrency Technologies

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Satoshi Nakamoto.Bitcoin began in 2008 with the release of a white paper titled Bitcoin: A Peer to Peer Electronic Cash Systemthat was authored by Satoshi Nakamoto. This paper, which was made freely available online, is the initial description of what Bitcoin is, how it works, and the philosophy behind its design. It’s still a good resource to get a quick idea of how Bitcoin’s technical design and philosophy were specified. Open‐source software implementing that specification was released soon after by the same Satoshi Nakamoto, and that’s where everything started. To this day, Satoshi is one of the central mysteries of Bitcoin. We know that the name Satoshi Nakamoto is almost certainly a pseudonym that some person or group of people adopted for Bitcoin‐related purposes. There is no prior record of the same Satoshi Nakamoto existing and Satoshi Nakamoto essentially only spoke about Bitcoin. Satoshi’s identity is associated with certain public keys and certain accounts in some websites. Digital signatures with these keys offer the only convincing proof that something was said or done by the real Satoshi. So Satoshi, while being a pseudonym, is also an identity which can speak, and who spoke especially extensively in the early history of Bitcoin. Satoshi was fairly active in working on and writing about Bitcoin, and participating in online forums from 2008 until mid‐2010 at which point Satoshi handed over control of the Bitcoin Core source code to other developers and has since said nothing. Most in the community feel Satoshi is not going to return. Satoshi claimed to be a 37‐year old male living in Japan (as of 2009). However, there is no evidence that Satoshi spoke or understood Japanese but we do know that Satoshi writes fairly fluently in English, although sometimes with American spelling sometimes with British spelling. There have been numerous attempts to look at Satoshi’s text, code, post times, machine identifiers, and so on to try to answer questions like: what is Satoshi's native language? Where is Satoshi from? There have even been attempts to use stylometry(the algorithmic analysis of text for writer‐specific patterns) to uncover Satoshi’s identity. The real identity of Satoshi is still unknown, despite occasional confident pronouncements by individuals and, at least once, a news organization. We also know that Satoshi acquired a huge number of bitcoins from early mining. In the very beginning Satoshi was the only miner and one of a limited number for much of Bitcoin’s early history. Until Bitcoin mining took off and the network’s hash rate started to increase due to the influx of other miners, Satoshi was accumulating a significant portion of block rewards, which was then 50 bitcoins every 10 minutes. As Bitcoin’s price appreciated, this turned into a small fortune, at one point worth several billion dollars. We know that these bitcoins haven’t been cashed out. Indeed, they’ve never been moved since being mined. Everybody can see which Bitcoin addresses probably belong to Satoshi, and so if those coins were to be sold and the proceeds transferred into any particular bank account, it would be a very notable event and an important clue to Satoshi's identity. So, interestingly, even though Satoshi has on paper made a considerable profit from Bitcoin mining, Satoshi is unable to cash in that profit without identifying himself or herself, and that’s something that, for whatever reason, Satoshi doesn't want to do. 202
In an important sense it doesn't matter that we don’t know Satoshi’s identity because of the notable feature of Bitcoin that it is decentralized and with no single entity in charge. Satoshi's not in charge, and to some extent it doesn't really matter what Satoshi thinks anymore. Any special influence that Satoshi has is only because of respect that Satoshi would have in the Bitcoin community should Satoshi become active again. Growth.Bitcoin has grown considerably since the system became operational in January 2009. We can see it in the graph of transaction volume (Figure 7.3) and in the graph of the exchange rate (7.4), although the all‐time peak price, as of April 2015, was back in late 2013. Sometimes the growth has been gradual, but sometimes there have been jumps or spurts, often corresponding to newsworthy events. Generally speaking, the growth has accelerated over time. Figure 7.3: Market Price of Bitcoin(7‐day average). Note the logarithmic scale. Source: bitcoincharts.com. Figure 7.4: Daily transaction volume(7‐day average). Source: bitcoincharts.com. 203
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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
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Figure 4.8: Payment process involvi
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transaction can't create coins, but
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of U.S. dollars per day pass throug
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Now if you look at a particular sec
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alance of 500,000 BTC. It then sign
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Chapter 5: Bitcoin Mining This chap
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In most cases you'll try every sing
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You can see in Figure 5.3 that over
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steady‐state, the period to find
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TARGET=(65535
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Disadvantages of GPU mining. GPU
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may be the fastest turnaround time
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Figure 5.10: Evolution of mining
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Hopefully, over time the embodied e
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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
Page 161 and 162: Temporary block‐withholding attac
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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 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
Page 181 and 182: Fees should be all-or-nothing. M
Page 183 and 184: Somebody looking at this transactio
Page 185 and 186: a single transaction that combines
Page 187 and 188: just minting one doesn’t automati
Page 189 and 190: Efficiency. Recall the statement
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: eing effectively bankrupt. As of ea
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Page 207 and 208: arrest. So although Ulbricht was th
Page 209 and 210: kind of business that will handle l
Page 211 and 212: een enough time for sellers to buil
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
Page 223 and 224: meaning the exponential growth peri
Page 225 and 226: Next, consider the problem that SET
Page 227 and 228: In Permacoin, each miner Msto
Page 229 and 230: Interestingly, these concerns have
Page 231 and 232: they can perform the signatures on
Page 233 and 234: schemes also require a small amount
Page 235 and 236: to provide an effective solution, t
Page 237 and 238: Chapter 9: Bitcoin as a Platform In
Page 239 and 240: means that if you actuallydo
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Page 243 and 244: features without needing to change
Page 245 and 246: would just look like a dollar bill.
Page 247 and 248: you. In particular, you can’t use
Page 249 and 250: To solve this problem we can once a
Page 251 and 252: 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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