Bitcoin- An innovation. By - Rajitha Devabhaktuni - Ravali Chennamneni

Transcription

1 Bitcoin- An innovation By - Rajitha Devabhaktuni - Ravali Chennamneni

2 What is a Cryptocurrency? Decentralized Network Uses cryptographic principles to secure the transactions The holder of the currency has ownership Easy to keep transactions anonymous Hard or impossible to replace if lost or stolen Derives trust from mathematical properties In this presentation, we are dealing with a crypto currency named Bitcoin

3 Bitcoin vs Fiat currency FEATURES COMPARED BITCOIN FIAT CURRENCY Scarce Bitcoin supply is fixed at 21M It is not scarce Portability Bitcoins are digital, thus can be transferred for free over any distance For large amounts of fiat currency, we need infrastructure Divisibility Can be divided into 100 million pieces For ex. USD, is divisible into only hundred pieces. Authenticity verification Must be identified in the public ledger by software Requires infrastructure such as banks, credit Transaction History Canbe traced Cannot be traced

4 Origin of Bitcoin In Bitcoin a digital currency and form of decentralized electronic money was developed by Santoshi Nakamoto (believed to be an alias or pseudonym) In The developer released a software that could be used to digitally send, receive, and store Bitcoins The project is now maintained by a community of developers and is available as an Open-source software

5 What is bitcoin? Bitcoins are represented by symbols BTC or XBT Bitcoins can be sent and received through Internet similar to sending cash digitally This currency is exchanged through direct peer to peer transactions without going through

6 Characteristics of Bitcoin Simple set-up and Decentralized Completely transparent Transaction fees are miniscule Anonymous Borderless-global Non-repudiable

7 What Do Bitcoins Look Like? 1454A2geTxaJwF8eqry7oLECdomgDSj6Zx Public key 34 characters 5JHkYd4mYKTsCsF5axnFj573PG6tqpeJ39Rz2M3vwBka4S1hu6 Private Key 51 Characters

8 How do we obtain Bitcoins? There are three basic ways of obtaining bitcoins and they range from simple transactions to complex mining methods 1) Bitcoins are created through bitcoin mining, a process which involves solving complex mathematical equations using software. 2) Bitcoins can be obtained by selling something in online markets. 3) Buying bitcoins at various bitcoin exchange markets.

9 Where are bitcoins stored? A wallet is basically the Bitcoin equivalent of a bank account. It allows one to receive bitcoins, store them, and then send them to others. There are two basic types of wallets Hot wallet- internet connected ; instant transfer ; vulnerable to hacking Cold wallet- offline wallets( stored on PC) ; more secure ; cumbersome

10 Paper Wallet Mobile Wallet

11 What is a Bitcoin Address? A Bitcoin address, is an identifier of alphanumeric characters, beginning with the number 1 or 3, that represents a possible destination for a Bitcoin payment. Features: It is a single use token Can be generated free of cost Can be created offline They are case sensitive and exact They do not carry any balance information

12 How does it work? Basic elements of working: Transactions Blocks Block chain Mining Mining pools

13 Public ledger: Shared public ledger Present at all nodes in the network Keeps a track of balances in all the accounts

14 Transactions: Responsible for the transfer of bitcoin from the source account to the destination account Sent from and to electronic bitcoin wallets Everyone on the bitcoin network is notified whenever a transaction takes place Transaction history can be traced Transaction block consists of an Input, amount, output

15 Each transaction is digitally signed by the sender This guarantees that only the owner of the money can use it

16 How are transactions verified? Bitcoin network, being decentralized, does not have a trusted central authority to verify the transactions Bitcoin system makes use of the block chain technology, allowing transactions to be processed in decentralized, trustless manner

17 Block chain Blocks are the fundamental units of a block chain The unconfirmed transactions are bundled into blocks to place it on to the bitcoin network for verification/confirmation Blocks become a part of the block chain when their respective transactions get confirmed Block chain is a constantly updated ledger of all transactions that occurred It is impractical to modify blocks, once added to the block chain Longest chains enable trust or verification The process of adding blocks to block chain is carried out by miners through a process called Mining

18 How Blocks are selectively added to the Block chain

19 Mining The job of a miner is to verify transitions and write them on a ledger Miners gather information in the block and apply mathematics to it resulting in a value called hash The hash is a unique on way function and changing the hash of a block would change the one of the subsequent block too and continue till the end of the chain creating a havoc In doing this there is a great competition among the miners Using specific software miners mine blocks and the one who successfully creates the hash is awarded an incentive

20 Proof of work: Main componentguaranteeing bitcoin network s legitimatebehavior To prevent an attacker from taking control over the network Attacker would need computing power difficult to achieve Creating a hash of a block is easy, the process must be made more complicated Complexity of a block achieved by requiring that the hash of each new block starts with a given number of zeros of below a target value Older block data and a nonce are combined to calculate this hash

21 The target is to produce a hash with 0000 at the start of the hash: "Hello, world!0" => 1312af178c253f84028d480a6adc1e25e81caa44c749ec e2ec934c64 "Hello, world!1" => e9afc424b79e4f6ab42d99c81156d3a17228d6e1eef4139be78e948a9332a7d8 "Hello, world!2" => ae37343a357a e7134cbea22f5928be8ca2a32aa475cf05fd4266b7... "Hello, world!4248" => 6e110d98b388e77e9c6f042ac6b497cec46660deef75a55ebc7cfdf65cc0b965 "Hello, world!4249" => c004190b822f1669cac8dc37e761cb73652e7832fb cf26ebb9e6 "Hello, world!4250" => 0000c3af42fc31103f1fdc0151fa747ff87349a4714df7cc52ea464e12dcd4e9 The miner requires to try 4251 different random numbers or nounces. The miner who ends up with the right nonce and hash value will declare it to the rest of the peers who then check it, accept it, add it the end of chain and start working from this new point.

22 Comparison of Cryptocurrencies

23 Different features compared Bitcoin Litecoin Peercoin Quarkcoin Primecoin Dogecoin Feathercoin Launched Units 3 Jan 2009 BTC 7 Oct 2011 LTC 19 Aug 2012 PPC 21 Jul 2013 QRK Algorithm SHA256d scrypt SHA256 Blake, groestl, blue midnight wish, jh, SHA-3, skein 7 Jul 2013 XPM 6 Dec 2013 DOGE Cunningham scrypt scrypt 16 April 2013 FTC Method Proof of work Proof of work Proof of work/ Proof of work Proof of work Proof of work Proof of work stake Mining time 10min/block 2.5min/block 10min/block 30sec/block 1min/block 1min/block 80sec/block Network Hash rates 511,323 Thash/s 1,202 Ghash/s 269 Thash/s 141 Mhash/s 0.6 Ghash/s 1 Thash/s 184 Mhash/s Total currency capped 21 million 84 million Unlimited 247 million mined the first 6 months, then 1 million QRK every year Unlimited Unlimited 336 million

24 Different features compared Bitcoin Litecoin Peercoin Quarkcoin Primecoin Dogecoin Coins minted so far 14,976,600 43,266,635 22,786, ,502,473 12,346, ,910,435,906 Addresses Richer than 1/10/100/10,000 USD 2,390,916/ 651,648/ 237,634/ 76, ,202/ 38,397/ 7,536/ 1,121 12,507/ 3,176/ 898/ 110 9,855/ 360/ ,829/ 10,677/ 1,411/ 131 Value of coin (USD) Hardware for mining Complex ASIC hardware CPU, high speed RAM CPU, high speed RAM CPU, high speed RAM CPU, high speed RAM CPU, high speed RAM Reward/ block mined 25 coins 50 coins 80.4 coins 1 coin 8.48 coins 10,000 coins

25 Attacks Selfish Mining DoS attacks Sybil attacks 51% attack

26 Selfish mining The attacker has 25% control over the Bitcoin network. Miners and Mining pools calculate blocks over a private network Publishes the calculated blocks on to the Bitcoin Network only when the rest of the Network is achieving computational power close to the miner s Selfish miner gains higher rewards by placing higher portion of blocks Possible solution is to include a Timestamp

27 DoS attacks Sending lots of data to a node may make it busy so that it cannot process normal bitcoin transactions. Prevents the transactions of legitimate users from being confirmed Requires lots of bandwidth to relay attacker s transactions Can be possibly reduced by setting priorities over transactions Transactions with higher fee are preferred over those with lower fee Recent DDoS attack took place in the Bitcoin Network in March, 2015

28 Sybil Attack: Attacker attempts to fill the network with nodes controlled by him Attacker can investigate the transactions taking place He can also uncover the identities behind the transfers Serves as an advantage for the government to track criminals Slows down the network performance for the legitimate users Such kind of attacks are most vulnerable to decentralized networks Possible solution is to have a central authority

29 51% attack Attacker owns enough computing power which enables double-spending attack Can possibly result in the ability to take money from other users and preventing any kind of record to prove so For a few hours on, mining pool Ghash.io controlled 51% of the processing power being used to perform calculations that keep bitcoin secure

30 51% attack Source: Blockchain.info

31 Bitcoin improvement proposals (BIPs) BIPs became the standard for communicating new ideas as Bitcoin has no formal structure It is a technical document addressing issue in the Bitcoin core client The proposals are published publicly and voting for the proposal comes down to all involved participants especially miners

32 Bitcoin mining a waste of energy Mining is a process in which powerful computers create Bitcoins by solving processor- intensive equations. The idea is to keep the supply of Bitcoins from multiplying too quickly Mining Bitcoins takes so much processor power that it s often done with specialized computers optimized for rapid repetitive calculations The trade-off here is that as virtual value is created, real-world value is used up. About 982 megawatt hours a day, to be exact. That s enough to power roughly 31,000 U.S. homes If the dreams of Bitcoin proponents are realized, and the currency is adopted for widespread commerce, the power demands of bitcoin mines would rise dramatically

33 Bitcoin s misuse: Bitcoin has been used for illegitimate purposes such as drug traders, weapons etc. The silk road market (accepted only bitcoins) dealing with this kind of criminal purposes has be shut down by the FBI and about 144,336 bitcoins have been transferred to the accounts controlled by the FBI Bitcoin is the perfect blackmail payment method Following the recent attacks on Paris, GhostSec, an Anonymous offshoot which actively hacks ISIS efforts worldwide, said that ISIS regularly uses cryptocurrencies to fund its operations. It offered evidence from September, in which the group believed it had uncovered a single address worth $3 million in bitcoins

34 Pros and Cons Discussed Pros: Freedom in payment Control and security Information is transparent Very low fees Fewer risk for merchants Cons: Lack of awareness and understanding Risk and volatility Still Developing

35 Conclusion: Bitcoin is a new concept and is still developing In the process of being understood and adopted by growing number of consumers, merchants and investors all over the world Has advantages that physical currencies do not provide However, it has its disadvantages such as the attacks discussed in the previous slides and misuses Improvements can be made for its wide spread use all over the world