Bitcoin and Beyond

Presented by Alex Akselrod

Decentralized Digital Currencies

Why Digital Currency?

Cash for the InternetSecurity

Privacy

Crypto-anarchy

ExamplesDigicash one of the very first cryptocurrencies

PayPal

eGold

Liberty Reserve

How they work

Digicash used Chaumian blind signatures and a mint to check for double spends

PayPal and Liberty Reserve balance/d user deposits against deposits with partner institutions

eGold kept bullion in a vault and balanced user deposits against that

Centralized ledgers single point of failure

Decentralization

A public ledger so everyone plays by the rulesEach full peer verifies all transactions

Timestamps to prevent double-spendingMiners operate distributed timestamp server

Proof of work = lottery

Initial distributionMining rewards

Scamcoins often pre-mine - SolidCoin

The Nitty Gritty - Transactions

Each transaction is a set of ledger entries

Two listsOutputs consist of amount and condition to redeem that money - debit

Inputs consist of pointer to previous output and script that makes the condition return true - credit

Total input amount >= total output amount, the remainder is miner fees

All outputs are fully used up when used as inputs, change outputs to new address help preserve privacy

Transaction Diagram

By Matthus Wander (Own work) [CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commonshttp://commons.wikimedia.org/wiki/File%3ABitcoin_Transaction_Inputs_and_Outputs.png

Blocks

Each block contains header and list of Txes

Header contains hash of last header, timestamp, target, root of TX Merkle tree, nonce, and TX count is replaced with padding

Arranged in a TREE of possible TX orderings

Hash of the block being less than the target is proof of work like HashCash, but reusable

First TX is the coinbase - trustless inflation

Until a TX is in a block, no work secures it

Blockchain

The blockchain is a ledger, blocks are pages

Longest branch of block tree by cumulative proof of work is blockchain

Represents current network consensus state

Parameters change to keep time, limit supplydifficulty retargeting every 2016 blocks

subsidy halves every 210,000 blocks

Blockchain Diagram

By Matthus Wander (Own work) [CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commonshttp://commons.wikimedia.org/wiki/File%3ABitcoin_Block_Data.svg

P2P Network

Message-based protocol

Provides forPeer discovery

Broadcast of transactions and blocks

Download of blockchain by new nodes

Download of memory pool by newly started nodes

Stateful (Bloom filter) connections for lite nodes

Alert broadcasts

Transaction Example

Alice has received two outputs 5 mBTC and 10 mBTC, wants to pay Bob 12 mBTC

Bob generates address, gives it to Alice

Alice generates change address, creates TX:Input 1: 5 mBTC

Input 2: 10 mBTC

Output 1: 12 mBTC to Bob's address

Output 2: 2.9 mBTC to her change address

Transaction Example, Continued

Alice broadcasts TX to peer nodes

Peers verify TX, add to mempool, rebroadcast

Eventually, transaction makes it to Bob's node

Miners include TX in block they're working on, recalculate Merkle root and keep hashing

When a block is found, miner broadcasts

Peers validate and rebroadcast

Alice and Bob see their first confirmation!

Result

Decentralized payment network more like settlement network

Unconfirmed TXes = cleared, confirmed = settled

All TXes are in bitcoins

Limited supply Thiers' Law

Open platform for commerce and innovation

No middlemen, no borders, no censorship, no SPOF, only the rules of its own design

The Future Is Here

Criteria for redemption can specify complex contracts using scripts

Scripts can check signatures, hashes, m-of-n signatures, and transactions can enforce nLockTime and limited selection of input/output combinations

Applications include deposits, assurance contracts, escrow, micropayments, bets

Caveats

Privacy is user-defined

ScalabilityBlock size CPU, network, storage

UTXO indexing/blockchain pruning, SPV

Off-chain transactions, centralized and not

Off-chain bets and other complex contracts

Transaction malleabilityImportant to contracts with refund failsafes

Cause of the latest ruckus

Alt-coins

Many use same technology but alter parameters like hash algorithm, block frequency, monetary policy Litecoin, Freicoin, Dogecoin

Some use unique concepts proof of stake, additional scripting and data storage capabilities PPCoin, NXT, Ethereum, Mastercoin

Bitcoin Mining

Progression: CPU, GPU, FPGA, ASIC

Mining chip manufacturers include KnC, CoinTerra, Butterfly Labs, ASICMiner, BitFury, Avalon caveat emptor

Mining software includes cgminer, bfgminer

Pools include Eligius, Slush

Please consider P2Pool peer-to-peer decentralized pool - http://p2pool.in/

BFL EasyMiner

Butterfly Labs wraps bfgminer, Avalon wraps cgminer

Courtesy of http://p2pool.in/

Alt-coin mining

Bitcoin mining software and ASICs can often be adapted for SHA256-based coins

Litecoin and other scrypt-based coins are still using GPUs, though ASICs are rumoredcgminer for AMD GPUs

cudaMiner for Nvidia GPUs

P2Pool supports Litecoin as well (maybe not any more?)

Getting and Using Bitcoins

Buy from Coinbase, LocalBitcoins, or exchange caveat emptor

Sell goods or services for Bitcoin Coinbase and BitPay make it easy, or use FOSS

Trade for altcoins at Cryptsy and other exchanges

Buy from many Coinbase and BitPay enabled merchants like Overstock.com, Gyft.com, fiverr.com, and adafruit.com

Desktop Bitcoin Wallets

Multibit simple, SPV wallet

Electrum uses a blockchain server

Hive SPV wallet for Mac OS X

Bitcoin-QT and bitcoind the full node

Armory advanced security features, requires bitcoind

Android and Web Bitcoin Wallets

Bitcoin Wallet by Andreas Schildbach SPV

Mycelium Android, uses a blockchain server

Blockchain.info web-based and Android app

Coinbase web-based and Android app

CoinKite web wallet and debit card/terminal