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Bitcoin: Evolution of Virtual Currency

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Since its launch in 2009, Bitcoin has emerged like a global phenomenon. Garnering massive success, Bitcoin has added to proliferation of virtual currencies, leading to creation of virtual trading / …

Since its launch in 2009, Bitcoin has emerged like a global phenomenon. Garnering massive success, Bitcoin has added to proliferation of virtual currencies, leading to creation of virtual trading / crypto currency exchanges, bringing an unprecedented semantic distinction to the form of money.

While Bitcoin saga brought a distinctive financial ecosystem to life, it didn't come without its own set of risks and challenges. In recent years, Bitcoin infrastructure and users have faced numerous risks including money laundering incidents, targeted cyber attacks and malware threats on digital wallets. As many security professionals observe, proliferation of digital currencies has also given rise to cyber crime and other forms of digital disruption. This webinar aims to facilitate useful understanding into Bitcoin evolution, its growing importance and several security incidents launched at Bitcoin infrastructure

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  • These factors involving elements convenience, protection against inflation, cost effectiveness, trust in the Bitcoin protocol, privacy and others have collectively contributed to Bitcoin’s growth
    Let’s see how Bitcoin is notching up with other globally established mediums of exchange or top payment networks for average daily transaction volume
  • Money -- Deposit into bank account
    Bitcoin -- stored in public ledger
    Sending/Receiving BTC easy as sending an email
    Coins are stored in "wallets"
    -Local hard drive
    - Paper
    - Hosted online
  • Money -- Deposit into bank account
    Bitcoin -- stored in public ledger
    Sending/Receiving BTC easy as sending an email
    Coins are stored in "wallets"
    -Local hard drive
    - Paper
    - Hosted online
  • This illustration explains a typical Bitcoin transaction and how Public and Private Keys are used to complete the same
  • - Bitcoin mining refers to the computationally-intensive task of generating Bitcoins. While any computer can be put to the task of Bitcoin mining by using a free mining application, in reality a great deal of computing power is required to solve the extremely complex algorithms involved and to share those solutions with the entire Bitcoin network. The mining process is quite complicated and involves advanced concepts such as cryptographic hashes and nonces.

    Now lets see a this process through a block diagram.

    To put the process shown in this diagram in simple terms, this is how we should see it - Bitcoin miners use powerful computers to track and compile pending Bitcoin transactions every 10 minutes into a new block. These miners then set to work doing the intensive number-crunching required to verify all the transactions in the block. This is a competitive process, and the first miner to solve the algorithms and verify the transactions transmits the results to the entire Bitcoin network. Upon confirmation by the rest of the network, the block is then added to the block chain. Each block includes a certain number of Bitcoins in a “coinbase” transaction that is paid out to the successful miner. 
  • To use Bitcoin in practice, one first needs to install a wallet program on computer. To give a simpler understanding of what that means, here’s a screenshot of a wallet called Multbit. You can see the Bitcoin balance on the left — 0.06555555 Bitcoins, or about 70 dollars at the exchange rate on the day this screenshot was captured— and on the right two recent transactions, which deposited those 0.06555555 Bitcoins:
    Suppose you’re a merchant who has set up an online store, and you’ve decided to allow people to pay using Bitcoin. What you do is tell your wallet program to generate a Bitcoin address. In response, it will generate a public / private key pair, and then hash the public key to form your Bitcoin address; You then send your Bitcoin address to the person who wants to buy from you. You could do this in email, or even put the address up publicly on a webpage. This is safe, since the address is merely a hash of your public key, which can safely be known by the world anyway.
    Let’s take a look at the data from an actual transaction transferring 0.31900000 bitcoins. What’s shown below is very nearly the raw data. It’s changed in three ways: (1) the data has been deserialized; (2) line numbers have been added, for ease of reference; and (3) Various hashes and public keys have been abbreviated, just putting in the first six hexadecimal digits of each, when in reality they are much longer. Here’s the data:

    Let’s go through the data, line by line.

    Line 1 contains the hash of the remainder of the transaction, 7c4025..., expressed in hexadecimal. This is used as an identifier for the transaction.

    Line 2 tells us that this is a transaction in version 1 of the Bitcoin protocol.

    Lines 3 and 4 tell us that the transaction has one input and one output, respectively. I’ll talk below about transactions with more inputs and outputs, and why that’s useful.

    Line 5 contains the value for lock_time, which can be used to control when a transaction is finalized. For most Bitcoin transactions being carried out today the lock_time is set to 0, which means the transaction is finalized immediately.

    Line 6 tells us the size (in bytes) of the transaction. Note that it’s not the monetary amount being transferred! That comes later.

    Lines 7 through 11 define the input to the transaction. In particular, lines 8 through 10 tell us that the input is to be taken from the output from an earlier transaction, with the given hash, which is expressed in hexadecimal as 2007ae.... The n=0 tells us it’s to be the first output from that transaction; we’ll see soon how multiple outputs (and inputs) from a transaction work, so don’t worry too much about this for now. Line 11 contains the signature of the person sending the money, 304502..., followed by a space, and then the corresponding public key, 04b2d.... Again, these are both in hexadecimal

    Lines 12 through 14 define the output from the transaction. In particular, line 13 tells us the value of the output, 0.319 bitcoins. Line 14 is somewhat complicated. The main thing to note is that the string a7db6f... is the Bitcoin address of the intended recipient of the funds (written in hexadecimal). In fact, Line 14 is actually an expression in Bitcoin’s scripting language.
  • 2013 witnessed a massive numbers of cyber attacks targeted on Bitcoin wallets and networks. The diagram showcases key attack methods used by hackers.
  • In 2013, vulnerability research in Cyberoam Threat Research Labs uncovered malware factories and hacking scam chasing Bitcoin Mining. The investigation revealed that cyber criminals were propagating deadly malware attacks using popular P2P tools such as Skype to victimize unsuspecting users to steal computing powers from their system.

    https://www.cio.com.au/mediareleases/16175/bitcoin-malware-not-just-limited-to-skype-and/
  • Transcript

    • 1. www.cyberoam.com www.cyberoam.com Presenter: Keyur Shah Presales Manager, Cyberoam Our Products Network Security Appliances - UTM, NGFW (Hardware & Virtual) Modem Router Integrated Security appliance Bitcoin: Evolution of Virtual Currency
    • 2. www.cyberoam.com What is Bitcoin?  Decentralized Digital Currency  Like virtual cash or gold  Transfer person to person  No bank or Government prerequisites
    • 3. www.cyberoam.com Did Bitcoin bring anything new?  Crypto-currencies around since 1980's  Bitcoin solves "double spend" problem through distributed network  First Bitcoin issued in 2009 -- satoshi nakamoto
    • 4. www.cyberoam.com Bitcoin founder…
    • 5. www.cyberoam.com Anatomy of Bitcoin and its working  Limited to 21 million Bitcoins  X amount release every ~10 minutes until 2140  Divisible to .000000001 (USD = .01)  Very Difficult & expensive to hack  Controlled by consensus of market participants
    • 6. www.cyberoam.com
    • 7. www.cyberoam.com What is Money • Means of exchanging goods & services • USD, gold • Four properties of Money: 1. Divisible ( broken into small amount) 2. Durable ( stands test of time) 3. Fungible( commoditization) 4.Verifiable ( verify it's real) Bitcoin – new digital money
    • 8. www.cyberoam.com • Limited/ Scarce (like gold) • Decentralized ( no government) • Peer-to-Peer ( like torrents) • Can be anonymous • Transparent (open source) • Trusted (vetted for over 5 years) • Easy to buy and sell • Extremely low transaction fees • Irreversible ( no chargebacks) Key benefits that accord greater value to Bitcoin
    • 9. www.cyberoam.com Key differences with electronic form of money
    • 10. www.cyberoam.com Factors that add to Bitcoin’s rise  6.5 billion people don't have access to banking services  Fiat currencies (government / federal regulated) are getting inflated  cross-currency purchases & transfers are expensive and have friction • Bitcoin facilitates instant peer-to-peer transactions • Enables worldwide payments • Involves almost no processing fees
    • 11. www.cyberoam.com How Bitcoin works?
    • 12. www.cyberoam.com Infographic
    • 13. www.cyberoam.com • Two Parts of a Bitcoin " account" 1. Public Key - account number / address 27 -34 alphanumeric characters 2. Private key - Password to access bitcoins in the account • Public Key example - 172ExtQasasssA3E4BNirSdEGRTFRTASwsartgtgaEw How Bitcoin works?
    • 14. www.cyberoam.com Infographic
    • 15. www.cyberoam.com Bitcoin transaction process diagram
    • 16. www.cyberoam.com What is Bitcoin mining?
    • 17. www.cyberoam.com Mining is the process of adding transaction records to Bitcoin ledger of past transaction. This ledger of past transaction is called block chain. The block chain servers confirm transactions to the rest of the network as having taken place. Bitcoin mining
    • 18. www.cyberoam.com Example of Bitcoin protocol in use
    • 19. www.cyberoam.com Crypto is used to Authenticate transaction – prevent double spending, false ownership. Bitcoin Mining - illustrated
    • 20. www.cyberoam.com Bitcoin Mining - illustrated
    • 21. www.cyberoam.com Bitcoin Mining illustrated
    • 22. www.cyberoam.com Cybercrime and Bitcoin
    • 23. www.cyberoam.com World’s largest Bitcoin exchange goes bust Mt.Gox CEO Mark Karpeles bowed in apology at a press conference in Tokyo announcing the bitcoin exchange would seek bankruptcy protection.
    • 24. www.cyberoam.com 2013 – the year of Bitcoin Malware Scare
    • 25. www.cyberoam.com 2013 – Bitcoin Malware Trend
    • 26. www.cyberoam.com CTRL exposes Bitcoin Mining Malware factories!
    • 27. www.cyberoam.com Security research by CTRL on Bitcoin Mining Malware
    • 28. www.cyberoam.com Thank you

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