Bitcoin and Cryptocurrency Technologies

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Storage requirements. Fully validating nodes must stay permanently connected so as to hear about all the data. The longer a node is offline, the more catching up it will have to do when it rejoins the network. Such nodes also have to store the entire block chain and need a good network connection to be able to hear every new transaction and forward it to peers. The storage requirement is currently in the low tens of gigabytes (see Figure 3.11), well within the abilities of a single commodity desktop machine. Figure 3.11. Size of the block chain. Fully validating nodes must store the entire block chain, which as of the end of 2014 is over 26 gigabytes. Finally, fully validating nodes must maintain the entire set of unspent transaction outputs, which are the coins available to be spent. Ideally this should be stored in RAM, so that upon hearing a new proposed transaction on the network, the node can quickly look up the transaction outputs that it’s attempting to claim, run the scripts, see if the signatures are valid, and add the transaction to the transaction pool. As of mid-2014, there are over 44 million transactions on the block chain of which 12 million are unspent. Fortunately, that’s still small enough to fit in less than a gigabyte of RAM in an efficient data structure. Lightweight nodes. In contrast to fully validating nodes, there are lightweight nodes, also called thin clients or Simple Payment Verification (SPV) clients. In fact, the vast majority of nodes on the Bitcoin network are lightweight nodes. These differ from fully validating nodes in that they don’t store the entire block chain. They only store the pieces that they need to verify specific transactions that they care about. If you use a wallet program, it would typically incorporate an SPV node. The node downloads the block headers and transactions that represent payments to your addresses. An SPV node doesn’t have the security level of a fully validating node. Since the node has block headers, it can check that the blocks were difficult to mine, but it can’t check to see that every transaction included in a block is actually valid because it doesn’t have the transaction history and doesn’t know the set of unspent transactions outputs. SPV nodes can only validate the transactions 94
that actually affect them. So they’re essentially trusting the fully validating nodes to have validated all the other transactions that are out there. This isn’t a bad security trade off. They’re assuming there are fully validating nodes out there that are doing the hard work, and that if miners went through the trouble to mine this block, which is a really expensive process, they probably also did some validation to make sure that this block wouldn’t be rejected. The cost savings of being an SPV node are huge. The block headers are only about 1/1,000 the size of the block chain. So instead of storing a few tens of gigabytes, it’s only a few tens of megabytes. Even a smartphone can easily act as an SPV node in the Bitcoin network. Since Bitcoin rests on an open protocol, ideally there would be many different implementations that interact with each other seamlessly. That way if there’s a bad bug in one, it’s not likely to bring down the entire network. The good news is that the protocol has been successfully re-implemented. There are implementations in C++ and Go, and people are working on quite a few others. The bad news is that most of the nodes on the network are running the bitcoind library, written in C++, maintained by the Bitcoin Core developers, and some of these nodes are running previous out-of-date versions that haven’t been updated. In any event, most are running some variation of this one common client. 3.6 Limitations and improvements Finally, we’ll talk about some built-in limitations to the Bitcoin protocol, and why it’s challenging to improve them. There are many constraints hard-coded into the Bitcoin protocol, which were chosen when Bitcoin was proposed in 2009, before anyone really had any idea that it might grow into a globally-important currency. Among them are the limits on the average time per block, the size of blocks, the number of signature operations in a block, and the divisibility of the currency, the total number of Bitcoins, and the block reward structure. The limitations on the total number of Bitcoins in existence, as well as the structure of the mining rewards are very likely to never be changed because the economic implications of changing them are too great. Miners and investors have made big bets on the system assuming that the Bitcoin reward structure and the limited supply of Bitcoins will remain the way it was planned. If that changes, it will have large financial implications for people. So the community has basically agreed that those aspects, whether or not they were wisely chosen, will not change. There are other changes that would seem to make everybody better off, because some initial design choices don’t seem quite right with the benefit of hindsight. Chief among these are limits that affect the throughput of the system. How many transactions can the Bitcoin network process per second? This limitation comes from the hard coded limit on the size of blocks. Each block is limited to a megabyte, about a million bytes. Each transaction is at least 250 bytes. Dividing 1,000,000 by 250, we see that each block has a limit of 4,000 transactions, and given that blocks are found about every 10 minutes, we’re left with about 7 transactions per second, which is all that the Bitcoin network can handle. It may seem that changing these limits would be a matter of tweaking a constant in a source 95
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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
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: Figure 3.10 Block propagation ti
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
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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
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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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