Bitcoin and Cryptocurrency Technologies

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As you can see, the requirements are substantial, and they’re analogous to the sort of requirements for a mutual fund or a publicly traded stock. The NYDFS must still decide what to do with the proposal — whether to withdraw it, issue it in its current form, or make further modifications. Along with that decision they'll issue some kind of a document that gives the rationale for what they decided to do. If something like the BitLicense goes into effect, it would be a major step in the history of Bitcoin. You would have a situation where not only NYDFS, but perhaps other jurisdictions would start to step in and regulate, and you'd start to see Bitcoin businesses start to get closer to the traditional model of regulated financial institutions. This would be a step that’s in some ways contrary to the cypherpunk or cypher‐libertarian ideas about what Bitcoin should be, but on the other hand there’s a certain inevitability that as soon as Bitcoin became really valuable, Bitcoin businesses became big businesses, and government got interested, regulation would ensue. Bitcoin businesses touch real people and the fiat currency economy. If Bitcoin is big enough to matter, then it is big enough to get regulated. It represents a retreat from what the original advocates of Bitcoin had in mind, but in another way it represents the Bitcoin ecosystem growing up and integrating into the regular economy which is much more regulated. Regardless of your stance on it, regulation is starting to happen, and if you're interested in starting a Bitcoin business you need to be paying attention to this trend. Will this be a success? There are different ways to look at it, but here’s one way to evaluate the effectiveness of regulation like BitLicense with respect to the public policy goal of improving the quality of Bitcoin businesses: if something like BitLicense goes into effect, and if companies start advertising to customers outside New York that they can be trusted because they have a BitLicense, and if that argument is convincing to consumers when they’re picking a company to do business with, then regulation will be working in the way that its advocates wanted it to. Whether that will happen and how it will affect the future of Bitcoin is something that we'll have to wait and see. Further reading Two papers which contain many interesting details of how Silk Road and it successors have operated: Christin, Nicolas. Traveling the Silk Road: A measurement analysis of a large anonymous online marketplace. Proceedings of the 22nd International Conference on World Wide Web, 2013. Soska, Kyle and Christin, Nicolas. Measuring the Longitudinal Evolution of the Online Anonymous Marketplace Ecosystem. Proceedings of the 24th USENIX Security Symposium, 2015. A guide to the regulatory issues that Bitcoin raises: Brito, Jerry, and Andrea Castillo. Bitcoin: A primer for policymakers. Mercatus Center at George Mason University, 2013. 214
A book that looks at the history of modern cryptography and the cypherpunk movement, which gives some intuition for the early political roots of Bitcoin: Levy, Steven. Crypto: How the Code Rebels Beat the Government—Saving Privacy in the Digital Age. Penguin, 2001. A popular exposition of early work on digital cash, combined with a vision for a world with digital privacy: Chaum, David. Security without identification: Transaction systems to make big brother obsolete. Communications of the ACM, 1985. A survey of the economics of information security which discusses several reasons for market failure: Anderson, Ross, and Tyler Moore. The economics of information security. Science 314, no. 5799, 2006. A discussion of Bitcoin‐specific economic issues and regulatory options: Böhme, Rainer, Nicolas Christin, Benjamin Edelman, and Tyler Moore. Bitcoin: Economics, Technology, and Governance. The Journal of Economic Perspectives 29, no. 2, 2015. The text of the BitLicense proposal: New York State Department of Financial Services Regulations of the Superintendent of Financial Services. Part 200: Virtual Currencies(revised), 2015. 215
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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
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Figure 5.11: Illustration of uncert
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Figure 5.13: Mining rewards. Thr
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Some mining hardware even supports
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By April 2015, the situation looks
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Figure 5.15 Forking attack.A mal
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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
Page 199 and 200: The interesting case is if the fork
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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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: The text refers to “activities in
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
Page 241 and 242: CommitCoin exploits this property.
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
Page 253 and 254: that there’s no way for anyone to
Page 255 and 256: to predict the low‐level fluctuat
Page 257 and 258: design, because miners have to veri
Page 259 and 260: Here's another example, this time f
Page 261 and 262: You can also trade shares for futur
Page 263 and 264: 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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