Bitcoin and Cryptocurrency Technologies

More documents

Recommendations

Info

Traditional financial arrangements Back in time before there were governments, before there was currency, one system that worked for acquiring goods was barter. Let’s say Alice wants a tool and Bob wants medicine. If each of them happen to have what the other person needs, then they can swap and both satisfy their needs. On the other hand, let’s say Alice has food that she’s willing to trade for a tool, while Bob, who has a tool, doesn’t have any need for food. He wants medicine instead. Alice and Bob can’t trade with each other, but if there’s a third person, Carol, who has medicine that she’s willing to trade for food, then it becomes possible to arrange a three-way swap where everyone gets what they need. The drawback, of course, is coordination — arranging a group of people, whose needs and wants align, in the same place at the same time. Two systems emerged to solve coordination: credit and cash. Historians, anthropologists, and economists debate which of the two developed first, but that’s immaterial for our purposes. In a credit-based system, in the example above, Alice and Bob would be able to trade with each other. Bob would give Alice the tool and Bob gets a favor that’s owed to him. In other words, Alice has a debt that she needs to settle with Bob some time in the future. Alice’s material needs are now satisfied, but she has a debt that she’d like to cancel, so that’s her new “want”. If Alice encounters Carol in the future, Alice can trade her food for Carol’s medicine, then go back to Bob with the medicine and cancel the debt. On the other hand, in a cash-based system, Alice would buy the tool from Bob. Later, she might sell her food to Carol, and Carol can sell her medicine to Bob, completing the cycle. These trades can happen in any order, provided that the buyer in each transaction has cash on hand. In the end, of course, it’s as if no money ever changed hands. Neither system is clearly superior. A cash-based system needs to be “bootstrapped” with some initial allocation of cash, without which no trades can occur. A credit-based system doesn’t need bootstrapping, but the drawback is that anyone who’s owed a debt is taking on some risk. There’s a chance that the other person never comes back to settle the debt. Cash also allows us to be precise about how much something is worth. If you’re bartering, it’s hard to say if a tool is worth more than medicine or medicine is worth more than food. Cash lets us use numbers to talk about value. That’s why we use a blended system today — even when we’re using credit, we measure debt in the amount of cash it would take to settle it. These ideas come up in many contexts, especially online systems where users trade virtual goods of some kind. For example, peer-to-peer file-sharing networks must deal with the problem of “freeloaders,” that is, users who download files without sharing in turn. While swapping files might 4
work, there is also the issue of coordination: finding the perfect person who has exactly the file you want and wants exactly the file you have. In projects like MojoNation and academic proposals like Karma, users get some initial allocation of virtual cash that they must spend to receive a file and earn when they send a copy of a file to another user. In both cases, one or more central servers help keep track of users’ balances and may offer exchange services between their internal currency and traditional currency. While MojoNation did not survive long enough to implement such an exchange, it became the intellectual ancestor of some protocols used today: BitTorrent and Tahoe-LAFS. The trouble with credit cards online Credit and cash are fundamental ideas, to the point that we can sort the multitude of electronic payment methods into two piles. Bitcoin is obviously in the “cash” pile, but let’s look at the other one first. Credit card transactions are the dominant payment method that is used on the web today. If you’ve ever bought something from an online seller such as Amazon, you know how the arrangement goes. You type in your credit card details, you send it to Amazon, and then Amazon turns around with these credit card details and they talk to the “system”—a financial system involving processors, banks, credit card companies, and other intermediaries. On the other hand, if you use something like PayPal, what you see is an intermediary architecture. There’s a company that sits between you and the seller, so you send your credit card details to this intermediary, which approves the transaction and notifies the seller. The intermediary will settle its balance with the seller at the end of each day. What you gain from this architecture is that you don’t have to give the seller your credit card details, which can be a security risk. You might not even have to give the seller your identity, which would improve your privacy as well. The downside is that you lose the simplicity of interacting directly with the seller. Both you and the seller might have to have an account with the same intermediary. Today most of us are comfortable with giving out our credit card information when shopping online, or at least we’ve grudgingly accepted it. We’re also used to companies collecting data about our online shopping and browsing activity. But in the 1990s, the web was new, standards for protocol-level encryption were just emerging, and these concerns made consumers deeply uncertain and hesitant. In particular, it was considered crazy to hand over your credit card details to online vendors of unknown repute over an insecure channel. In such an environment, there was a lot of interest in the intermediary architecture. A company called FirstVirtual was an early payment intermediary, founded in 1994. Incidentally, they were one of the first companies to set up a purely virtual office with employees spread across the country and communicating over the Internet — hence the name. 5
Page 1 and 2: Bitcoin and Cryptocurrency Technolo
Page 3: Preface — The Long Road to Bitcoi
Page 7 and 8: Finally, CyberCash has the dubious
Page 9 and 10: This was the first serious digital
Page 11 and 12: and so on — powers of two. That w
Page 13 and 14: Figure 3 shows the user side of the
Page 15 and 16: initial cost to acquire all the equ
Page 17 and 18: the system is to record the relativ
Page 19 and 20: original design. However, after Bit
Page 21 and 22: A final reason that’s often cited
Page 23 and 24: Chapter 1: Introduction to Cryptogr
Page 25 and 26: Figure 1.2 Because the number of
Page 27 and 28: Property 2: Hiding The second pr
Page 29 and 30: ecome: ● ● Hiding: Given H(
Page 31 and 32: SHA‐256 uses a compression functi
Page 33 and 34: Figure 1.5 Block chain.A block c
Page 35 and 36: Figure 1.7 Merkle tree. In a Mer
Page 37 and 38: throughout this book. 1.3 Digital S
Page 39 and 40: Figure 1.9 Unforgeability game.
Page 41 and 42: andomness just in making a signatur
Page 43 and 44: 1.5 A Simple Cryptocurrency Now let
Page 45 and 46: The first key idea is that a design
Page 47 and 48: Figure 1.13 A PayCoins Transa
Page 49 and 50: Perusing the NIST standard that def
Page 51 and 52: Chapter 2: How Bitcoin Achieves Dec
Page 53 and 54: state of the system. The implicatio
Page 55 and 56:
consensus is somewhat pessimistic,
Page 57 and 58:
Implicit Consensus. This assumpt
Page 59 and 60:
Figure 2.2 A double spend attempt.
Page 61 and 62:
In general, the more confirmations
Page 63 and 64:
Figure 2.4 The block reward is c
Page 65 and 66:
puzzle‐friendliness property from
Page 67 and 68:
possible outcomes, and the probabil
Page 69 and 70:
theory problem that’s not easily
Page 71 and 72:
this interlocking interdependence b
Page 73 and 74:
Further reading The Bitcoin whitepa
Page 75 and 76:
Chapter 3: Mechanics of Bitcoin Thi
Page 77 and 78:
In this example, Alice specifies tw
Page 79 and 80:
3.2 Bitcoin Scripts Each transactio
Page 81 and 82:
the Bitcoin language and one has to
Page 83 and 84:
exactly the same script, which is i
Page 85 and 86:
in the normal case, this isn’t th
Page 87 and 88:
Technically all of these transactio
Page 89 and 90:
The header mostly contains informat
Page 91 and 92:
in turn sends it to all of its peer
Page 93 and 94:
Figure 3.10 Block propagation ti
Page 95 and 96:
that actually affect them. So they
Page 97 and 98:
that the old version would accept a
Page 99 and 100:
Exercises 1. Transaction validation
Page 101 and 102:
Chapter 4: How to Store and Use Bit
Page 103 and 104:
software can automatically turn the
Page 105 and 106:
The cryptographic magic that makes
Page 107 and 108:
may never know (or care) who the co
Page 109 and 110:
Given this stringent requirement, s
Page 111 and 112:
There is a formula called Lagrange
Page 113 and 114:
Ideally, the site will encrypt thos
Page 115 and 116:
seen exchanges that fail due to bre
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
Page 123 and 124:
transaction can't create coins, but
Page 125 and 126:
of U.S. dollars per day pass throug
Page 127 and 128:
Now if you look at a particular sec
Page 129 and 130:
alance of 500,000 BTC. It then sign
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
Page 137 and 138:
steady‐state, the period to find
Page 139 and 140:
TARGET=(65535
Page 141 and 142:
Disadvantages of GPU mining. GPU
Page 143 and 144:
may be the fastest turnaround time
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
Page 161 and 162:
Temporary block‐withholding attac
Page 163 and 164:
the transaction from address X
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
Page 205 and 206:
of illegal items becomes potentiall
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
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
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 and 276:
Switching costs are certainly not z
Page 277 and 278:
If our altcoin is merge‐mined, we
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
Page 295 and 296:
Bitcoin, Alice can remotely transfe
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
show all

Bitcoin and Cryptocurrency Technologies

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?