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    Bitcoin A Peer-to-Peer Electronic Cash S PDF

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    Felipe Gustavo Matias Ferreira
    This document provides an overview of Bitcoin, including: - Bitcoin is a decentralized digital currency and payment system not managed by any central authority. - Transactions are broadcast through the peer-to-peer network and recorded on a public ledger called the blockchain. - Miners on the network validate transactions by solving complex cryptographic puzzles, and are rewarded with new bitcoins. - The difficulty of puzzles is automatically adjusted to aim for a 10 minute block generation time.

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    Bitcoin A Peer-to-Peer Electronic Cash S PDF

    Uploaded by

    Felipe Gustavo Matias Ferreira
    265 views30 pages
    This document provides an overview of Bitcoin, including: - Bitcoin is a decentralized digital currency and payment system not managed by any central authority. - Transactions are broadcast through the peer-to-peer network and recorded on a public ledger called the blockchain. - Miners on the network validate transactions by solving complex cryptographic puzzles, and are rewarded with new bitcoins. - The difficulty of puzzles is automatically adjusted to aim for a 10 minute block generation time.

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    This document provides an overview of Bitcoin, including: - Bitcoin is a decentralized digital currency and payment system not managed by any central authority. - Transactions are broadcast through the peer-to-peer network and recorded on a public ledger called the blockchain. - Miners on the network validate transactions by solving complex cryptographic puzzles, and are rewarded with new bitcoins. - The difficulty of puzzles is automatically adjusted to aim for a 10 minute block generation time.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    265 views30 pages

    Bitcoin A Peer-to-Peer Electronic Cash S PDF

    Uploaded by

    Felipe Gustavo Matias Ferreira
    This document provides an overview of Bitcoin, including: - Bitcoin is a decentralized digital currency and payment system not managed by any central authority. - Transactions are broadcast through the peer-to-peer network and recorded on a public ledger called the blockchain. - Miners on the network validate transactions by solving complex cryptographic puzzles, and are rewarded with new bitcoins. - The difficulty of puzzles is automatically adjusted to aim for a 10 minute block generation time.

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    Bitcoin

    A Peer-to-Peer
    Electronic Cash System
    Author: Satoshi Nakamoto

    Presenter: Flavio Vit


    Course: UNICAMP IA368
    Professors: Christian Esteve Rothenberg,
    Mauricio Ferreira Magalhes

    November 21, 2013


    Agenda
    Introduction
    Key Concepts
    BTC Transactions
    BTC Mining
    Bitcoins
    Proof of Work
    Digital Wallet
    Security
    Legal Considerations
    Conclusion
    Introduction
    What is Bitcoin?
    First decentralized digital / virtual currency
    Crypto Peer to Peer currency
    Electronic payment system based on cryptographic
    proof instead of trust
    Developed by a person or group under the pseudonym
    of Satoshi Nakamoto in 2008 / Operational since early
    2009

    No financial institutions is managing


    Key Concepts
    Transactions

    Proof of
    Digital Wallet Bitcoins Work

    Mining
    BTC Transactions

    Straight between the owner and the receiver


    Broadcasted through the P2P network
    All are public but anonymous
    Mining nodes collects the transactions into Blocks
    BTC Transactions
    Transactions Blocks Full page in a Ledger Book

    Block => contains information about transactions


    and previous Block ( Block Chain ) linking to the first
    block when Bitcoin Network started
    BTC Transactions
    The Block Chain file is maintained on every node
    BTC Transactions
    Each Block carries a Proof of Work
    BTC are generated for the machine which solved
    the Proof of Work

    New block is started and linked to the block chain


    First transaction in a block = Special transaction =
    new coins owned by the creator of the block

    New block chain status is broadcasted to the


    network
    BTC Transactions
    Fighting Transactions Hackers
    Transaction history cannot be changed unless
    redoing all Proof of Work of all blocks in the chain
    Redoing Block Proof of Work => recalculating all
    Proof of Work from successors => Enormous
    computational power
    Double spending problem => solved using a P2P
    distributed timestamp server to generate
    computational proof of the chronological order of
    transactions
    BTC Mining
    No centralized entity for generating BTC
    Mining Process => Solve the Proof of Work from a
    Transaction Block
    Confirms transactions and increase security
    User can be miners and are rewarded by:
    Transactions fees for the transactions they confirm
    New block created / proof of work solved? => 25 BTC
    today

    Mining is a competitive market $$$$$$


    More miners => More secure network
    BTC Mining
    September 2013 => 11,5 Million Bitcoins
    Bitcoins are generated in blocks
    Currently 25 Bitcoins are mined per block
    A New Block are generated every 10 minutes
    The mined BTC are kept with the PC which solved
    the proof of work
    BTC Mining
    BTC are generated in a steady rate
    In Jan 2009, 1 Transaction Block solved = 50 BTC
    After 210.000 transaction blocks, the reward drops
    by 50%

    BTC generation => to stop by 2140


    21 Million Bitcoins will be generated
    After 2140 the incentive will be only the transaction
    fee
    BTC Mining
    Mining nodes

    Initially, CPU power to solve the Proof of Work for


    Transaction Blocks

    Graphic cards solve faster the Proof of Work


    New dedicated chips for performing mining
    Miners are crucial BTC network by ensuring:
    Impartial
    Stable
    Secure
    Bitcoins

    BTC are entries in the transactions blocks / in the


    ledger book

    Someone receives a BTC => transaction logged in


    the transaction block chain (unconfirmed until
    Proof of Work is solved)
    BTC ownership and transfer are ensured by digital
    signatures (crypto private and public keys)
    Proof of Work
    Protocol challenging the mining nodes
    Tough to be solved X Easy to be verified
    Every 2 weeks, BTC generation rate is auto
    adjusted.

    Increasing / decreasing the difficulty of the Proof


    of Work => targeting 10 minutes block generation

    Solving the puzzle => Winning a lottery


    Proof of Work
    Transactions in the Block Chain are protected by a
    mathematical race

    Attacker computational power VERSUS The entire


    network power
    Proof of Work
    BTC uses Adam Back Hashcash Proof of Work with
    configurable amount of work to compute

    Uses cryptographic hash SHA256


    Proof of Work
    Time stamp server => hash of all data in a block
    including the hash from previous block

    Solution to order the Transaction Blocks


    Proof of Work
    Typical PC may take several years to solve it
    Solved in 10 minutes using the BTC network
    Extremely unlikely, but 2 or more nodes may solve
    the Proof of Work at same time
    Proof of Work
    Branches in the block chain are created in this case
    Tie!!! => to be broken when someone solves the
    next block

    Nodes will switch to the longest branch


    Blocks will be discarded and respective
    transactions will be handled by the wining branch

    The block chain stabilizes and nodes agree with the


    chain sequence
    Digital Wallet
    BTC can be stored in a digital Wallet
    Web services
    Local applications
    USB drivers

    BTC are protected by Private / Public keys


    Also possible to print the BTC
    Digital Wallet
    No one can lock or freeze your money like a bank
    account

    Bitcoins fraction => the smallest fraction:


    1 Satoshi 0.00000001 BTC

    Losing your private key => losing yours BTCs


    Forever gone from BTC economy

    BTC is deflationary!
    Security
    No one can change the BTC software without the
    majority of the entire network of users accepting
    the change
    While the majority of the nodes are honest,
    attackers cannot harm the system
    End of Block Chain Insecurity => Branches =>
    Double Spending attack => Protected by the
    Hashcash / Time Stamp Server
    The attacker would need astronomical computer
    power to corrupt the block chain
    Beware!!!
    Where to use BTC?
    Legal Considerations
    Money laundry practically impossible to track BTC
    transactions

    FBI x Silk Road Bitcoin used for trading drugs


    among other illicit products.
    Governments are good at cutting off the heads of a centrally
    controlled networks like Napster, but pure P2P networks like
    Gnutella and Tor seem to be holding their own.

    Satoshi Nakamoto
    Conclusions
    BTC: P2P digital currency with mathematic
    protection
    No centralized control / No evil Central Bank
    The exchange rates may oscillate drastically

    we dont really understand how that worked, as


    economists. - Lawrence White, economics professor
    at George Mason University / IEEE Spectrum
    interview
    Conclusions
    No government can print more money
    Anonymity
    Lower global transaction costs
    A new bubble may emerge
    Oct 2013 = 150 USD
    Nov 2013 > 500 USD

    March 28th 2013: BTC passed the 1 Billion USD


    (11 million Bitcoins in circulation)
    References
    1. Satoshi Nakamoto. Bitcoin: A Peer-to-Peer Electronic Cash System.
    http://bitcoin.org/bitcoin.pdf

    2. Khan Academy. http://www.youtube.com/user/khanacademy

    3. Scott Driscoll. How Bitcoin Works Under the Hood.

    http://www.imponderablethings.com/2013/07/how-bitcoin-works-
    under-hood.html

    4. Adam Back. Hashcash. http://www.hashcash.org/

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