Bitcoin and Cryptocurrency Technologies

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4. Even when all nodes are honest, blocks will occasionally get orphaned: if two miners Minnie and Mynie discover blocks nearly simultaneously, neither will have time to hear about the other’s block before broadcasting hers. 4a. What determines whose block will end up on the consensus branch? 4b. What factors affect the rate of orphan blocks? Can you derive a formula for the rate based on these parameters? 4c. Try to empirically measure this rate on the Bitcoin network. 4d. If Mynie hears about Minnie’s block just before she’s about to discover hers, does that mean she wasted her effort? 4e. Do all miners have their blocks orphaned at the same rate, or are some miners affected disproportionately? 5a. How can a miner establish an identity in a way that’s hard to fake? (i.e., anyone can tell which blocks were mined by her.) 5b. If a miner misbehaves, can other miners “boycott” her by refusing to build on her blocks on an ongoing basis? 6a. Assuming that the total hash power of the network stays constant, what is the probability that a block will be found in the next 10 minutes? 6b. Suppose Bob the merchant wants to have a policy that orders will ship within x minutes after receipt of payment. What value of x should Bob choose so that with 99% confidence 6 blocks will be found within xminutes? 74
Chapter 3: Mechanics of Bitcoin This chapter is about the mechanics of Bitcoin. Whereas in the first two chapters, we’ve talked at a relatively high level, now we’re going to delve into detail. We’ll look at real data structures, real scripts, and try to learn the details and language of Bitcoin in a precise way to set up everything that we want to talk about in the rest of this book. This chapter will be challenging because a lot of details will be flying at you. You’ll learn the specifics and the quirks that make Bitcoin what it is. To recap where we left off last time, the Bitcoin consensus mechanism gives us an append-only ledger, a data structure that we can only write to. Once data is written to it, it’s there forever. There’s a decentralized protocol for establishing consensus about the value of that ledger, and there are miners who perform that protocol and validate transactions. Together they make sure that transactions are well formed, that they aren’t already spent, and that the ledger and network can function as a currency. At the same time, we assumed that a currency existed to motivate these miners. In this chapter we’ll look at the details of how we actually build that currency, to motivate the miners that make this whole process happen. 3.1 Bitcoin transactions Let’s start with transactions, Bitcoin’s fundamental building block. We’re going to use a simplified model of a ledger for the moment. Instead of blocks, let’s suppose individual transactions are added to the ledger one at a time. Figure 3.1an account-based ledger How can we build a currency on top of such a ledger? The first model you might think of, which is actually the mental model many people have for how Bitcoin works, is that you have an account-based system. You can add some transactions that create new coins and credit them to somebody. And then later you can transfer them. A transaction would say something like “we’re moving 17 coins from Alice to Bob”, and it will be signed by Alice. That’s all the information about the 75
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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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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.
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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
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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
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Page 73: Further reading The Bitcoin whitepa
Page 77 and 78: In this example, Alice specifies tw
Page 79 and 80: 3.2 Bitcoin Scripts Each transactio
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Page 85 and 86: in the normal case, this isn’t th
Page 87 and 88: Technically all of these transactio
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Page 91 and 92: in turn sends it to all of its peer
Page 93 and 94: Figure 3.10 Block propagation ti
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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
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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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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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