Bitcoin and Cryptocurrency Technologies

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peer‐to‐peer network, might change in some form to make it more difficult for this attack to succeed. But we can’t quite predict that. So we’re working in a simplified model where a 51 percent attack happens, but other than that, there are no changes or tweaks to the rules of the system. Let’s consider another attack. Can the 51‐percent attacker suppress some transactions? Let’s say there is some user, Carol, whom the attacker really doesn’t like. The attacker knows some of Carol’s addresses, and wants to make sure that no coins belonging to any of those addresses can possibly be spent. Is that possible? Since he controls the consensus process of the block chain, the attacker can simply refuse to create any new blocks that contain transactions from one of Carol’s addresses. The attacker can further refuse to build upon blocks that contain such transactions. However, he can’t prevent these transactions from being broadcast to the peer‐to‐peer network because the network doesn’t depend on the block chain, or on consensus, and we’re assuming that the attacker doesn’t fully control the network. The attacker cannot stop the transactions from reaching the majority of nodes, so even if the attack succeeds, it will at least be apparent that the attack is happening. Can the attacker change the block reward? That is, can the attacker start pretending that the block reward is, instead of 25 Bitcoins, say 100 Bitcoins? This is a change to the rules of the system, and because the attacker doesn’t control the copies of the Bitcoin software that all of the honest nodes are running, this is also not possible. This is similar to the reason why the attacker cannot include invalid transactions. Other nodes will simply not recognize the increase in the block reward, and the attacker will thus be unable to spend them. Finally, can the attacker somehow destroy confidence in Bitcoin? Well, let’s imagine what would happen. If there were a variety of double‐spend attempts, situations in which nodes did not extend the longest valid branch, and other attempted attacks, then people are going to likely decide that Bitcoin is no longer acting as a decentralized ledger that they can trust. People will lose confidence in the currency, and we might expect that the exchange rate of Bitcoin will plummet. In fact, if it is known that there is a party that controls 51 percent of the hash power, then it’s possible that people will lose confidence in Bitcoin even if the attacker is not necessarily trying to launch any attacks. So it is not only possible, but in fact likely, that a 51 percent attacker of any sort will destroy confidence in the currency. Indeed, this is the main practical threat if a 51 percent attack were ever to materialize. Considering the amount of expenditure that the adversary would have to put into attacking Bitcoin and achieving a 51 percent majority, none of the other attacks that we described really make sense from a financial point of view. Hopefully, at this point you’ve obtained a really good understanding of how decentralization is achieved in Bitcoin. You should have a good command on how identities work in Bitcoin, how transactions are propagated and validated, the role of the peer‐to‐peer network in Bitcoin, how the block chain is used to achieve consensus, and how hash puzzles and mining work. These concepts provide a solid foundation and a good launching point for understanding a lot of the more subtle details and nuances of Bitcoin, which we’re going to see in the coming chapters. 72
Further reading The Bitcoin whitepaper: Nakamoto, Satoshi. Bitcoin: A peer‐to‐peer electronic cash system. (2008) The original application of proof‐of‐work: Back, Adam. Hashcash‐a denial of service counter‐measure.(2002) The Paxos algorithm for consensus: Lamport, Leslie. Paxos made simple.ACM Sigact News 32.4 (2001): 18‐25. Exercises 2 1. Why do miners run “full nodes” that keep track of the entire block chain whereas Bob the merchant can get away with a “lite node” that implements “simplified payment verification,” needing to examine only the last few blocks? 2. If a malicious ISP completely controls a user’s connections, can it launch a double‐spend attack against the user? How much computational effort would this take? 3. Consider Bob the merchant deciding whether or not to accept the C A → B transaction. What Bob is really interested in is whether or not the other chain will catch up. Why, then, does he simply check how many confirmations C A → B has received, instead of computing the difference in length between the two chains? 2 This only applies to “solo” miners who’re not part of a mining pool, but we haven’t discussed that yet. 73
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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
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: this interlocking interdependence b
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
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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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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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