Bitcoin and Cryptocurrency Technologies

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affront to the cryptocurrency ecosystem. So Eligius pointed its mining resources at CoiledCoin, mining blocks that reversed days’ worth of CoiledCoin transaction history as well as mining a long chain with empty blocks, effectively causing a denial‐of service attack which prevented CoiledCoin users from making any transactions. After a fairly short siege, users abandoned CoiledCoin, and it doesn’t exist any more. In this example and in other altcoin infanticide attacks, the attacker is motivated by something other than direct profit. Merge mining.By default — say if an altcoin forks the Bitcoin source code but makes no other changes — mining on the altcoin is exclusive. That is, you can try to solve the mining puzzle solution to find a valid block for the altcoin or for Bitcoin, but you can’t try to solve both puzzles at once. Of course, you can divide your mining resources to dedicate some to mining on the altcoin and some to mining on Bitcoin. You can even divide between multiple different altcoins and you can adjust your allocation over time, but there’s no way to get your mining power to do double duty. With exclusive mining, network effects can make it difficult for an altcoin to bootstrap. If you wanted to launch an altcoin and convince today’s Bitcoin miners to participate in your network, they would have to stop mining Bitcoin (with at least some of their resources) which will mean an immediate loss of Bitcoin mining rewards. This means your altcoin is likely to remain small in terms of hashing power and more vulnerable to infanticide‐style attacks by Bitcoin miners. Can we design an altcoin so that it’s possible to mine blocks both on the altcoin and on Bitcoin at the same time? To do that we need to create blocks that include transactions from both Bitcoin and the altcoin, making them valid in both block chains. It’s easy to design the altcoin so that it allows Bitcoin transactions in its blocks, because we can write the rules of the altcoin however we want. The reverse is harder. Where can we put altcoin transactions in Bitcoin blocks? In Chapter 3 and later in Chapter 9 we’ve seen how to put arbitrary data into Bitcoin blocks, but the bandwidth of these methods is very limited. There’s a trick, though: even if we can’t put the contentsof the altcoin’s transactions into Bitcoin blocks, we can put a summaryof the altcoin transactions into Bitcoin blocks in the form of a hash pointer to the altcoin block. Finding a way to put a single hash pointer into each Bitcoin block is easy. Specifically, recall that each Bitcoin block has a special transaction called the coinbase transaction which is where the miner creates new coins as a block reward. The scriptSig field of this transaction has no significance and can therefore be used to store arbitrary data (there’s no need to sign the Coinbase transaction since it’s not spending any previous transaction outputs). So in a merge‐mined altcoin, the mining task is to compute Bitcoinblocks whose Coinbase scriptsig contains a hash pointer to an altcoin block. This block can now do double‐duty: to Bitcoin clients, it looks just like any other Bitcoin block, with a hash in the coinbase transaction that can be ignored. Altcoin clients know how to interpret the block by ignoring the Bitcoin transactions and looking at the altcoin transactions committed to by the hash in the coinbase transaction. Note that while this doesn’t require any changes to Bitcoin, it does require the altcoin to specifically understand Bitcoin and accept merge‐mined blocks. 276
If our altcoin is merge‐mined, we hope that many Bitcoin miners will mine it, because doing so doesn’t require any additional hash power. It requires a modicum of additional computational resources for processing blocks and transactions, and miners need to know and care enough about our altcoin to even bother to mine it. Let’s say 25% of Bitcoin miners by hash power are mining our altcoin. This means that on average 25% of Bitcoin blocks contain pointers to altcoin blocks. It seems, then, that in our altcoin a new block would be mined on average every 40 minutes. Worse, while the altcoin is still being bootstrapped and the fraction of Bitcoin miners mining it is very small, the time between blocks will be hours or days, which is unacceptable. Can we ensure that blocks of a merge‐mined altcoin are created at a steady rate, as high or low as we want, irrespective of the fraction of Bitcoin miners mining it? The answer is yes. The trick is that even though the mining task for the altcoin is the same as that of Bitcoin, the mining targetneed not be. The altcoin network computes the target and difficulty for its blocks independently of the Bitcoin network. Just as Bitcoin adjusts its mining target so that blocks are found every 10 minutes on average, the altcoin would adjust its own target so that blocks in the altcoin are found every 10 minutes, or any other fixed value. Altcoin blocks Bitcoin blocks mined by altcoin merge‐miners Bitcoin blocks mined by non‐altcoin miners Attempted Bitcoin blocks found by altcoin merge‐miners that met the altcoin’s difficulty target but not Bitcoin’s target Figure 10.5: merge mining. This means that the altcoin’s target will typically be much less than Bitcoin’s target, and some (or even most) altcoin blocks will not be pointed to by valid Bitcoin blocks. But that’s okay! You should think of the Bitcoin block chain and the altcoin block chain as two parallel chains, with occasional pointers from a Bitcoin block to an altcoin block. This is illustrated in Figure 10.5. In this example, 60% of Bitcoin miners mine the altcoin, and the altcoin’s time‐between‐blocks is 5 minutes. This means that 277
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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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the transaction from address X
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Chapter 6: Bitcoin and Anonymity
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Unlinkability. To understand unl
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eason is that use cases that we cla
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But this reveals something. The tra
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the other hand, are often not new a
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Figure 6.5. Labeled clusters.
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Luckily, this is a problem of commu
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they are unhappy with anonymity pro
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Fees should be all-or-nothing. M
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Somebody looking at this transactio
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a single transaction that combines
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just minting one doesn’t automati
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Efficiency. Recall the statement
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We start with Bitcoin itself, which
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An alternative design to Zerocoin i
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elieve the same thing. So consensus
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of developers who maintain Bitcoin
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The interesting case is if the fork
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eing effectively bankrupt. As of ea
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In an important sense it doesn't ma
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of illegal items becomes potentiall
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arrest. So although Ulbricht was th
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kind of business that will handle l
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een enough time for sellers to buil
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The text refers to “activities in
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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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Page 227 and 228: In Permacoin, each miner Msto
Page 229 and 230: Interestingly, these concerns have
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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
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
Page 265 and 266: Chapter 10: Altcoins and the Crypto
Page 267 and 268: Attracting miners has special impor
Page 269 and 270: with the launch date of the altcoin
Page 271 and 272: Namecoin is technically interesting
Page 273 and 274: 10.3 Relationship Between Bitcoin a
Page 275: Switching costs are certainly not z
Page 279 and 280: When we think about a rational mine
Page 281 and 282: DepositA [Altcoin block chain] Refu
Page 283 and 284: Sidechains. The sidechains vision i
Page 285 and 286: lock themselves could tell us. This
Page 287 and 288: written in bytecode and executed by
Page 289 and 290: Bitcoin. In particular, there are c
Page 291 and 292: The simple binary Merkle tree used
Page 293 and 294: Chapter 11: Decentralized Instituti
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Page 297 and 298: only these signatures of limited fo
Page 299 and 300: 11.3 Template for Decentralization
Page 301 and 302: Sidebar: trust.Some people in th
Page 303 and 304: competition among intermediaries. P
Page 305 and 306: To drive home the mismatch between
Page 307 and 308: Conclusion to the book Some people
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