Bc. Michal Cisárik 25.3.2014

Bitcoin

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 Every node has downloaded every transaction since the beginning ( ) 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..) !

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 !

Transaction is then added to the new with all new (unconfirmed) transactions created within 10 minutes

Blockchain

block

nodes = timestamp servers

!

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: !

It has to start with certain number of zeros by to current adjusted by currentdifficulty hashrate

Nodes connected to the network are forced to try as many as it is needed to create right hashnonces

=> 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 !

No additional changes can’t be made because it would change consistency of every block hash

Mining25 BTC ~ 300 000 CZK every 10 minutes?

Originally it was 50 BTC (reward is halving)

solo mining

Mining

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

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

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

!

1. Hardware = Infrastructure

Blockchain - P2P sharing = secured !

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

3. Software = Protocol : Bitcoin foundation - coding = in development

+ 3-rd party elements:Websites, services - involving = expanding

Bitcoin activities / characteristics

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)

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 $ !

(~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?

- Heavy DDOS attacks on trading web server due to poorly coded security - XSS, SQL injection..

bitcash.cz mtgox.com

bitcurex.com

- Succesfull attacks - all BTCs in wallets are gone

11.11.20137. 2. 2014

14. 3. 2014

2. Cryptocurrency Security?

- Multiple malware for stealing BTCs (hidden in cracks)

OSX/CoinThief.A- Direct hackers attacks

!

- Hardware damage / lost notebooks (smartphones)

Secure Bitcoins

1. Encrypted backed-up (!!) offline created wallet 2. Printed wallet public & private keys as QR codes

www.truecrypt.org www.bitaddress.org

www.blockchain.info - online wallet

Secure Bitcoin web applications

www.swisscex.com & www.blockchain.info

Altcoins1. SHA-256: - Mazacoin - … !

2. SHA-3: - Maxcoin !

3. Scrypt: - Auroracoin - Litecoin - Dogecoin - …

Crypto 2.0 - Nextcoin - Mastercoin - Ethereum

www.altcoincalendar.info/calendar

MazacoinFirst sovereign national crypto coin in history

- based on Zetacoin - two phase pre-mine - block reward 5000 MZC

www.mazacoin.org

Auroracoin

Island inflation is 5215 % in 2014 (CR 94.36%)

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

= $85 according to the Central Bank

Auroracoin

- 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

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

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

!

3. 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 !

Questions? !

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