Block Chain Technologies

Unit 3- : How Bitcoin Achieves Decentralization

Dr.Ramya R S
Department of Computer Science and Engineering
Dayananda Sagar College of Engineering
VTU
December 2021

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Table of Contents

Centralization Vs Distributed
Distributed Consensus
Consensus without identity using a block chain
Incentives and Proof of Work
Putting it all together

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Centralization Vs Decentralization

Internet
E mail based on SMTP
Social networking
Decentralization is not all or nothing; almost no system is purely
decentralized or purely centralized.
Bitcoin protocol is decentralized, services like Bitcoin exchanges,
where you can convert Bitcoin into other currencies, and wallet
software, or software that allows people to manage their bitcoins may
be centralized or decentralized to varying degrees.

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How Bitcoin Achieves Decentralization?

1 Who maintains the ledger of transactions?

2 Who has authority over which transactions are valid?
3 Who creates new bitcoins?
4 Who determines how the rules of the system change?
5 How do bitcoins acquire exchange value?

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Distributed Consensus

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Distributed Consensus

Alice broadcasts to all the Bitcoin peer-to-peer nodes

at Bob is running one of the nodes in the peer-to-peer network.
If he wants to be notified that this transaction did in fact happen and
that he got paid, running a node might be a good idea.
There is no requirement that Bob be listening on the network;
running a node is not necessary for Bob to receive the funds.
The bitcoins will be his whether or not he’s operating a node on the
network.

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Distributed Consensus

In ScroogeCoin, for optimization, we put transactions into blocks.

Similarly, in Bitcoin, we do consensus on a block-by-block basis.
all the nodes in the peer-to-peer network have a ledger consisting of a
sequence of blocks, each containing a list of transactions, that they’ve
reached consensus on.
Each node has a pool of outstanding transactions (Consensus not
happened)
Every 10 minutes, every node in the system proposes its own
outstanding transaction pool to be the next block.
Then the nodes execute some consensus protocol.
If the consensus protocol succeeds, a valid block will be selected as
the output.

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Problems in Consensus

Nodes might crash or be malicious.

In a peer-to-peer system, and not all pairs of nodes are connected to
each other
Thus running a consensus protocol in which all nodes must
participate is not really possible.
There’s a lot of latency in the system because it’s distributed all over
the Internet.
Global Time: The node that sent the first message in step 1 must do
X in step 2.” This simply will not work because not all nodes will
agree on which message was sent first in the step 1 of the protocol.

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Consensus without identity using a block chain

Sybil attack.
Sybils are just copies of nodes that a malicious adversary can create to
look like there are a lot of different participants, when in fact all those
pseudo-participants are really controlled by the same adversary.

Nobody is forced to reveal their real-life identity, like their name or IP

address, in order to participate.
That’s an important property and a central feature of Bitcoin’s design.

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Bitcoin consensus algorithm

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Malicious adversary

Stealing Bitcoins.
Denial of service attack.
Double-spend attack.

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Double-spend attack.

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Bob:The Merchant View
Alice broadcasts the transaction that represents her payment to Bob,
Bob is listening on the network and hears about this transaction even
before the next block is created
Bob can complete the checkout process on the website and allow
Alice to download the software right at that moment. That’s called a
zero-confirmation transaction.

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Double

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 Thank You

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