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Bitcoin

Bc. Michal Cisárik

! ! ! ! ! ! ! 25.3.2014

Concepts behind Bitcoin

1. Cryptography 2. Peer to peer network 3. Proof of work

Cryptography
wallet = file (public & private key pair) address = public key (1FBXz6pKKhdyg5CwT38mFW2oi6xM7uVQe7) Everyone who has private key is owner of the wallet
- Bitcoin core wallet www.bitcoin.org - Multibit www.multibit.org - Electum www.electrum.org - Bitcoin Armory www.bitcoinarmory.com

P2P network

nodes = timestamp servers

Every node has downloaded every transaction since the beginning ( Blockchain ) so that it is easy to check if that public key (address) has amount of bitcoins which user wants to send (by checking all transactions..)
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Once the wallet is created user just need to connect to the network, create a transaction, sign it with his private key (so that everyone can verify its authenticity) and then just broadcast it to the network
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Transaction is then added to the new block with all new (unconfirmed) transactions created within 10 minutes

P2P network
New block contain previous block hash, timestamp, every new transaction and nonce

Block’s hash is then computed…

Proof of work
Creating hashes is computationally trivial, but Bitcoin requires that the new hash value have to be in particular form:
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! It has to start with certain number of zeros by ! to current difficulty adjusted by current hashrate Nodes connected to the network are forced to try as many nonces as it is needed to create right hash => mining

Proof of work
Right after right hash is computed, “coinbase” transaction is created and miner is rewarded by 25 BTC which are added to his wallet (after coinbase transaction is confirmed) New transactions are then broadcasted to the network in new block and stored in the blockchain forever
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No additional changes can’t be made because it would change consistency of every block hash

Mining
25 BTC ~ 300 000 CZK every 10 minutes? solo mining

Originally it was 50 BTC (reward is halving)

Mining
Solo mining is now impossible so that only option to mine is by mining in the pool and reward is divided

51% attack
If bitcoin node (pool) reaches 51% and more hashrate it can create (and confirm by mining) 2 block in sequence and create double spending transactions

Due to the current hash rate it is (almost) impossible

Bitcoin activities / characteristics
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Hardware = Infrastructure ! Blockchain - P2P sharing = secured
1.

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2. Community
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= Cryptocurrency ! BTC - mining, trading, spending = supported
3. Software

= Protocol : ! Bitcoin foundation - coding = in development
+ 3-rd party elements: Websites, services - involving = expanding

3. Protocol
Satoshi Nakamoto?

Paper
November 2008
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3. Protocol
Bitcoin foundation?

Github repository
January 2009
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3. Protocol
Security?

Major vulnerability
August 2010

Attack can create an indefinite number of bitcoins 184 billion bitcoins were generated in a transaction, and sent to two addresses on the network => Within hours, the transaction was spotted and erased from the transaction log. The bug was fixed and the network forked (only major security flaw ever found and exploited)

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3. Protocol - today
Bitcoin foundation?

! ! 8,332 commits made by 221 contributors ! ! representing 474,151 lines of code :

3. Protocol - today
Satoshi Nakamoto?

Remains anonymous, but we can clearly see that he has mined BTCs worths ~ 400 000 000 $
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(~7"727"600"000 CZK today) bitcoins are untouched

2. Cryptocurrency
Virtual money?

Reward of the “genesis” block was 50 bitcoins. The value of the first bitcoin transactions were negotiated by individuals on the bitcointalk forums with one notable transaction involving a 10 000 BTC pizza (121"167"000 CZK today)

2. Cryptocurrency
Trading?

2. Cryptocurrency
Security?
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Heavy DDOS attacks on trading web server due to poorly coded security - XSS, SQL injection..
11.11.2013 7. 2. 2014 14. 3. 2014

bitcash.cz mtgox.com bitcurex.com

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Succesfull attacks - all BTCs in wallets are gone

2. Cryptocurrency
Security?
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Multiple malware for stealing BTCs (hidden in cracks) OSX/CoinThief.A

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Direct hackers attacks
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Hardware damage / lost notebooks (smartphones)

Secure Bitcoins
www.blockchain.info - online wallet 1. Encrypted backed-up (!!) offline created wallet 2. Printed wallet public & private keys as QR codes

www.truecrypt.org

www.bitaddress.org

Secure Bitcoin web applications

www.swisscex.com & www.blockchain.info

Altcoins
1. SHA-256: ! ! - Mazacoin ! ! -…
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2. SHA-3: ! ! - Maxcoin
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3. Scrypt: ! ! - Auroracoin ! ! - Litecoin ! ! - Dogecoin ! ! - … www.altcoincalendar.info/calendar

Crypto 2.0 ! ! - Nextcoin ! ! - Mastercoin ! ! - Ethereum

Mazacoin
First sovereign national crypto coin in history

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based on Zetacoin two phase pre-mine block reward 5000 MZC www.mazacoin.org

Auroracoin
Icelandic krona has lost over 99.5% of its value in $

= $85 according to the Central Bank
Island inflation is 5215 % in 2014 (CR 94.36%)

Auroracoin

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Based on Litecoin (scrypt) 50 % premine

330,000 Icelanders will get 31.8 auroracoin EACH over the following year by the initiation called “Airdrop”

www.auroracoin.org

Cryptocurrency 2.0

. Mastercoin - Distributed exchange protocol layer with network security of Bitcoin, Distributed Applications, Distributed Exchange

. Nextcoin - first 100% Proof-of-Stake currency written from scratch, completely decentralized, eliminates risk of a 51% attack, “forging” instead of mining

. Ethereum - Decentralized Autonomous Corporations Turing-complete scripting language, user-issued ! ! currencies, smart property, smart contracts, !! ! ! decentralized exchange, easy to scale

Thank you for your attention
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Questions?
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