High level `architecture

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ABOUT THE AUTHORS
Guruprasad Navada is a Business Analyst at Altimetrik. He
has actively been involved in conceptualizing Next-
Generation solutions and developing frameworks for
enterprise wide implementations. His areas of interests
include Analytics, Payments and Cards.
Ujwal Tamminedi works as a Senior Business Analyst at
Altimetrik. He has worked primarily in consumer banking
and has been involved with major banks globally such as
Citibank APAC, Raiffeisen Bank Europe, Standard Bank
Africa, Arab National Bank, Bank China Trust Indonesia.
In Altimetrik he works on financial inclusion initiatives
with banks, card associations and core banking partners.
Ujwal's interest areas are primarily Analytics, to enable
better insight into consumer banking and Following
evolving smart banking trends to reduce dependency of
banks on traditional branches.

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ABOUT ALTIMETRIK
Altimetrik is a Technology led Business Transformation company headquartered in
Michigan, USA. Altimetrik boasts a footprint of 2,500 associates and it has offices
across the globe including San Francisco, Uruguay and India (Bengaluru, Chennai and
Mumbai)
Altimetrik’s philosophy is that, there are three paradigm shifts that are happening in
the world today. These three paradigms are: Business Transformation, Technology
Transformation and Skills Transformation. Altimetrik aims to work across all these
paradigms to help organizations generate the right user experience for their customers
Today, user experience is driving business. Organizations have many ideas to deliver a
superior user experience to their customers. But unfortunately they are held back by
traditional systems that operate in silos. Altimetrik will work with enterprises in setting
up an environment that is customized to them; to enable tools, frameworks and
Techno domain expertise in order for enterprises to deploy their ideas faster in the
market.
We do this backed by our unified resources - User experience designers, Industry
consultants, Techno- domain analysts, Technical architects, Dev Ops engineers,
Information visualization modellers, Testers, Integration experts and Deployment
specialists. Our expertise lies in leveraging our Agile Methodology and creating
reusable prototypes in 30-60-90 days
Altimetrik believes in Transforming Businesses and Touching Lives
www.altimetrik.com

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CONTENTS
1. Bitcoin (BTC) – An Overview ……………………………………………………………………………….5
2. Details of how Bitcoin (BTC) works – Transaction Block creation………………………….10
3. Cryptographic Hash Functions (CHF)……………………………………………………………….……14
4. Digital Signatures………………………………………………………………………………………………...15
5. Transaction Records…………………………………………………………………………………….…..….17
6. Proof of Work………………………………………………………………………………………………………18
7. Double Spending – Security of transaction block chains……………………………………….19
8. Bitcoin Economy…………………………………………………………………………………………………..21
9. Concept Idea………………………………………………………………………………………………………..22
10. Pitch……………………………………………………………………………………………………………………..23
11. Use cases - Ecommerce payment……………………………………………………………………….…23
12. Use cases – Peer to peer transfers………………………………………………………………………..24
13. Use cases – Merchant Payments…………………………………………………………………………..25
14. Revenue Sources for the Application………………………………………………………………….…26
15. Costs for the Application…………………………………………………………………………………….…26
16. References…………………………………………………………………………………………………………….27

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1 BITCOIN (BTC) – an Overview
Bitcoin is a decentralized virtual currency that uses a peer-to-peer system to authorize and
verify transactions. Bitcoin is the world’s leading digital currency used by people anywhere in
the world. Bitcoin is an arrangement amongst a community of people to use 21 million secure
mathematical tokens, i.e. -”Bitcoins” as currency. The Bitcoin network is made up of
thousands of computers run by individuals all over the world.
To get started using Bitcoin transactions, one needs to have a Bitcoin wallet. Like a real wallet,
it stores Bitcoins and is used to send and receive payments using unique addresses. People
can send and receive Bitcoins directly to anyone with a Bitcoin wallet, anywhere in the world,
almost instantly and at almost no cost.
Bitcoins are impossible to counterfeit, infinitely divisible, and there will never be more than
21 million of them (infinitely divisible means just that: the smallest unit of Bitcoin is currently
0.000000001, but could easily be made smaller if needed).
Anytime a Bitcoin transaction is made between users, it’s recorded on a publicly shared log
called the Block chain. These transactions are checked and confirmed by miners. Miners are
essentially people with powerful computers who, in exchange for newly created Bitcoins,
check/verify and hence do the broader validations of the transactions. With thousands of
miners contributing, transactions run smoothly, and the network is constantly secure. Due to
the large base of a Bitcoin network and users including miners, no coins can be reproduced or
double spent. Cryptography secures the wallet from any unidentified attacks. This type of
security is also used for credit card transactions and electronic bank transfers.
There is no central authority/bank controlling Bitcoin. So, it cannot be inflated like other state
currencies. Meanwhile, the pre-set embedded code limits the number of Bitcoins which can
ever be in circulation. To ensure a stable rate of circulation, Bitcoin production has been
modelled on gold mining. Just like mining for gold becomes increasingly difficult over time, so
does creating new Bitcoins. As the number of Bitcoins in circulation is fixed, it can only lead to
deflationary economy. It is estimated that the final Bitcoins will be produced in the year 2140.
The total balance of a Bitcoin address is kept on a ledger called the BlockChain. The BlockChain
records each and every Bitcoin transaction. Bitcoin transactions are verified and recorded into
the BlockChain by Bitcoin miners. Bitcoin miners perform this service by solving complex
puzzles that requires computing power & processor cycles, which in turn requires electricity.
As a reward for their work, Bitcoin miners receive new Bitcoins and a small transaction fee
paid by users sending Bitcoins. As Bitcoin mining becomes more competitive, the difficulty of
the puzzles increases – ensuring that the supply of Bitcoins is maintained at a steady and pre-
defined rate.

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Bitcoins can serve as a mode of payment for products or services at a growing number of
businesses. A transaction is made by “sending” Bitcoins to the address (pseudonym of
recipient) of the account to be credited. Once a transaction is made, it is broadcasted publicly
among the network; which is composed of individuals, known as “miners,” who devote
computing power to decode the transactions.
These transactions are not legally bound until the majority of the network verifies they are
valid—just as a central authority would verify a banking transaction before it is
confirmed. Then, the verified block is posted to the public block chain, and the network starts
to decode the next transaction block.
Payer - Payer has a Bitcoin wallet (also called Bitcoin client) which is associated with a unique
identifier (also called Public key). The client also has a secret passcode (called private key)
which helps in digitally signing the peer to peer payment.
1.1 PLAYERS/COMPONENTS IN A
BITCOIN TRANSACTION

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Payee – Payee too needs a Bitcoin client to accept Bitcoin payments. The payer uses the public
key of the payee to identify the payee and make payment to him.
Block chain – Block chain is like a public ledger of all transactions that have happened on the
Bitcoin network since its inception. There is no physical Bitcoin currency. All the balances of
peers on the network are known to everybody using this public ledger. There are applications
which read the Block Chain and let the wallet user know his balance. These applications can
also provide the entire transaction history of the wallet. The applications basically use the
public keys of the wallet, find the associated transactions in the Block chain and come up with
the balance and transaction history.
Transaction records – A transaction in the Bitcoin network is nothing but a message which is
sent from one Bitcoin client to another Bitcoin client (it is technically a broadcast message
sent to all the nodes on the network). The payer uses his private key to digitally sign the
message, puts the payee’s address (public key) as well as the amount to be paid and
broadcasts it to the network. The payee receives the same, verifies that the payment and he
thus has the new Bitcoin payment credited.

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Miners – Miners are people on the Bitcoin network who add new transactions to the Block
chain. When a payer broadcasts his transaction to the network, first the miners verify that the
message sent by the payee is correct by checking the transactions of the payee in the Block
Chain (This also checks whether the payee has enough balance of Bitcoins to make the
transaction). Then they have to perform what is known as a proof of work. This is a
mathematical problem which uses substantial computing power and is based on trial and
error as the only way of solving. This is done to prevent a Bitcoin user from defrauding the
network by spending his Bitcoin balance more than once. If a Bitcoin user has to defraud the
system, he has to create a parallel Block chain and add his fraudulent transaction along with
the proof of work to add the transaction. This will require the Bitcoin user to be very lucky or
have more computing power than all the miners put together. This is basically a way of
authenticating the transactions and not allowing anybody to add incorrect or malicious
transactions to the Block chain.
The incentive for the miners to perform this activity is that they get new Bitcoins for
themselves when they do this process. Also the payee can provide some Bitcoins from his
balance as a transaction fee to the miners. This process takes about 10 minutes on an average
after the payee broadcasts the transaction.
To send and receive Bitcoins, you need a Bitcoin wallet. A wallet gives you ownership over
Bitcoin addresses that you can use to send and receive bitcoins. A wallet address will look
something like this: “1EJcFxn7SzN51hb6M3XZutTWWt4Yjs3g2h”.
There are three types of wallets:
a. Web Wallets
Web wallet allows the user to use Bitcoins and generally requires less effort to protect the
wallet. Web Wallets may also be referred to as “Browser-based wallets” or “eWallets”. This
method is generally the easiest way to obtain a Bitcoin wallet. However, the user needs to
choose a web wallet service provider with care as they host and hold the Bitcoins. A Few web
wallet providers are Coinbase, BlockChain, etc.
b. Software Wallets
Software wallets are installed on the user’s computer. They give complete control over the
wallet. User is responsible for backups and protecting the Bitcoins
TYPES OF BITCOIN WALLETS
1.2

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c. Mobile Wallets
Mobile wallets allow users to store Bitcoins on mobile devices. User can exchange coins easily
and pay in physical stores by scanning a QR code or by using “tap to pay”.
Note: - Wallets can store entire holdings of a Bitcoin. If the wallet is lost, there is no recourse.
Bitcoins are lost forever and the Bitcoin holders will get richer through deflation.
They are three ways to acquire Bitcoins. They are:
a. Buy Bitcoins (from a Seller or through exchange)
b. Barter with Bitcoins (Accept Bitcoins by selling a product or service)
c. Mine Bitcoins (Run Mining software to generate and hence earn Bitcoins)
 Approximately 50% of world’s population is unbanked
 Fiat currencies are getting inflated
 Cross currency transactions are expensive and have friction
 Limited Bitcoins in circulation like Gold, hence higher value
 Lack of government control/manipulation, hence protection from inflation
 Anonymous nature of Bitcoin transactions - as Pseudonyms are used
 Beneficial for merchants as no chargebacks allowed
 Balance in each wallet is obtained from the blockchain history
 Miners are incentivized with payment fee and also with new Bitcoins.
 There is no reversal or chargeback of any confirmed transaction and hence there
is no fraud handling. This allows for low transaction costs, a major incentive for
using Bitcoins.
 As new Bitcoins are issued, mining becomes more compute intensive so that the
rate at which blocks are added remains approximately the same, to disallow
hackers from taking control of the network.
 Global accessibility of the network allows transfer across countries.
HOW TO ACQUIRE BITCOINS?
1.3
WHY IS BITCOIN IMPORTANT?
1.4
SAILENT FEATURES
1.5

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At an elementary level, for Sender to send money to a Recipient, he uses the Bitcoin client
which will create a transaction message with transaction details (amount and Public Key of
Recipient) and applies a digital signature. (Sender’s Private Key). The Sender can specify the
transaction fees. If not specified, the differential amount (Amount to be transferred to Sender
– Amount to be received back to the Recipient wallet) will be considered as the transaction
fees. Transaction Fee is an incentive to other nodes to help sender to validate the transaction.
Sender will broadcast this information (transaction message) to all the nodes in the peer to
peer network.
The Recipient’s Bitcoin client will receive the transaction message and it will verify the
availability of Bitcoins in the sender’s wallet by checking the entire transaction history
associated with the Sender’s public Key. But there is a need to do broader validations of the
transaction message as there is a point to ponder upon over here - which is, the double
spending by a Sender; that’s the Sender sending the same Bitcoins over the course of time to
DETAILS OF HOW A BITCOIN
WORKS- Transaction Block
Creation
2
Sender’s Wallet
Input Transaction – 30BTC
Output Transaction – 05BTC
------------------------------------
Balance – 25BTC
Send 14BTC to Recipient (Public Key)
Receive 10BTC to Sender (Public Key)
-------------------------------------------------
Rest if not specified will be
Transaction Fees (Here it is 1BTC)
Sender’s Bitcoin client
Transaction Message
Digital
Signature
(SHA256)
Bitcoin Client Applies
Digital Signature on
Transaction Message
BTC Client broadcasts the message to all the nodes (computers) in network

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anyone else in the Bitcoin network. This situation is handled well in the Bitcoin system by the
role played by Bitcoin Miners.
Note: - As the Bitcoin system evolves, transaction fees will be a deciding factor, which
eventually determines the sequence for a transaction to be validated
Let us try to draw an analogy between Bitcoin and Accounting Terminologies
The goal of a miner is to create the new ledger page (Transaction Block) and broadcast it to
network and hence append it to the Global comprehensive ledger book. Every miner (node)
in the network will have the entire transaction message starting from the genesis of Bitcoin
system in the form of a block known as the Transaction block.
Miners take all the transaction messages in the network and compile them into a Transaction
block. Transaction blocks record all the unrecorded transactions at a given point of time. A
New block is linked to the previous block and hence to the block chain running down to Zeroth
block.
As described above, the transaction message sent by the Sender will be taken up by the miner
along with other available transaction messages, which are nothing but unconfirmed
transactions to come up with a transaction block.
Single Transaction Message Ledger Item
Transaction Block Entire page in a Ledger Book
Chain of Transaction block
Global Comprehensive Ledger
Book
Transaction Block already added in
a Bitcoin Network
Ledger Page in a global
comprehensive Ledger Book
Transaction Block not yet added in a
Bitcoin Network
Proposed Ledger Page in a global
comprehensive Ledger Book
Transaction Message not yet added
in a Bitcoin Network
Proposed Ledger item in a Ledger
Book
BITCOIN ECOSYSTEM ACCOUNTING WORLD

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The entire basic flow has been explained below
Message Data
Transaction
Message 2
Message Data
Transaction
Message 3
Message Data
Transaction
Message 4
Message Data
Transaction
Message 5
Message Data
Transaction
Message 6
Message Data
Transaction
Message n
Unconfirmed
Transactions
At a given
time after
previous
Transaction
block is
confirmed
and added to
Global Block
chain
START
Miner 1
Miners pick up available unconfirmed transactions in the network to generate a transaction block
Role of Miners –
- They will work on creating a Transaction Block through cryptographic
hash functions
- They involve in broader validations of the transaction block
Transaction block contains –
- Public Key of miners to receive rewards for their efforts
- Link to previous Transaction Block and hence the entire Global
Transaction block chain
- Specially crafted sequences of number associated with the transaction
block known as “Proof of Work”.
Message Data
Transaction
Message 1
Miner 2 Miner 3 Miner 4 Miner n

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New
Transaction
Block –> N Transaction
Block –> N-1
Transaction
Block –> N-1
Transaction
Block –> N-2
Transaction
Block –> N-2
Transaction
Block –> 0
New
Transaction
Block – N New
Transaction
Block – N-1 New
Transaction
Block – N-2
New
Transaction
Block –> 0
Miners Job
Transaction Block Chain
 As Miners create “Transaction Block N”, it broadcasts the “New Block” to all nodes/peers
 Next step is to verify the newly created Block chain against a set of properties
 Nodes will accept those transaction blocks, for which the greatest amount of work is involved in
generating the contents – “Proof of Work” defines this.
 After a block is accepted, Nodes will start working on the next transaction block by gathering the
available unconfirmed transactions in the network.
BACK to START

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Cryptographic hash functions are the fundamental building blocks of many cryptographic
algorithms and protocols. The CHF algorithm used in Bitcoin protocols is SHA256. CHF as the
name suggests is a hash function which takes input messages of arbitrary length and does
mathematical transactions on it to produce a single output called “Digest”. Digest (Output
Message) – it is of fixed length. So in SHA256 algorithm, output digest length is 256 bits.
Characteristics of Cryptographic Hash Functions
i. Look Random
- Output message should look unrelated to the input message and hence random
ii. Collision Resistant
- Two inputs should never lead to the same output, that is, two inputs can never have
identical digests as an output
CRYPTOGRAPHIC HASH
FUNCTIONS (CHF)
3
Input Message
CHF
SHA 256
Output
Message –
DIGEST

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iii. Hide Information
- Given the digest, it should be hard for one to find the actual message (input data).
Hence the digest should be well distributed
iv. Computationally Efficient
- It should not take a lot of time to generate a cryptographic message. System should
be able to do digital transformations swiftly
All the above characteristics are kind of inter related, if output is unrelated to input and if it
looks random, then it leads to the powerful collision resistant property which implies, it is
difficult to find inputs with the same outputs.
Note
Till now, there is no mathematical method being developed to prove that the current existing
algorithm is fully collision resistant.
In the previous section, we have gone through the process involved in the generation of
cryptographic hash functions. In this section, let us look into the application of CHF, which is
diligently used to generate digital signatures.
Digital signature is a mathematical mechanism of combining a message with a given digital
signature. It is an electronic analog of a physical signature. It is the process of binding one’s
identity to the document by formulating the characters in the name in a particular way that it
is unique and hence no one can forge one’s identity in the document. The algorithm in practice
for digital signature standard is the RSA algorithm.
Input
Message 1
CHF
SHA 256
Output
Message
–
Input
Message 2
CHF
SHA 256
DIGITAL SIGNATURES
4

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Mechanism of a Digital Signature
Consider a scenario wherein a User ABC in the Bitcoin ecosystem (consider him as a sender)
wants to sign a document/message. ABC generates 2 keys. They are –
- Private Key (also known as signing key) (𝑆𝐾
)
- Public Key (also known as verification key) (𝑃𝐾
)
Public Key is the hash function of the Private Key. Both the keys are created at the same time
and are mathematically related. But it is not possible to predict 𝑆𝐾
by seeing 𝑃𝐾
and vice
versa.
The Transaction message undergoes a mathematical transformation along with Private Key
(𝑆𝑘
) and the output will be a sequence of numbers called the signature on Message M, 𝑆𝑀
(a
digest)
𝑆𝑀
is a combination of the Message and 𝑆𝐾
. Digital signatures are designed in a such a way
that the user generating an 𝑆𝑀
using 𝑆𝐾
can only reproduce 𝑆𝑀
by using the combination of
𝑆𝐾
and Message (M)
The Verification process in the Bitcoin ecosystem (the recipient does this) is executed by
taking in Message (M), Signature on the message (𝑆𝑀
) and the Public Key (𝑃𝐾
of ABC, the
sender here). This process is analogous to the signing process.
Hash
Function
𝑺𝑴
𝑺𝑲
𝑴𝒆𝒔𝒔𝒂𝒈𝒆 𝑴
Hash Function
𝐘𝐄𝐒 𝐨𝐫 𝐍𝐎
𝑺𝑴
𝑴𝒆𝒔𝒔𝒂𝒈𝒆 𝑴 𝑷𝑲

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Over here, the inputs will undergo a mathematical transformation, which eventually checks
the relation between the Public Key and the Private Key. If the operation results in a valid
combination of 𝑆𝐾
and 𝑃𝐾
, the output will be yes (Accept) or else will be a No (Reject)
Characteristics of Digital Signature
A Digital Signature on message (𝑆𝑀
) is created with the transaction message as an input;
which means if the message is changed/hacked, we get a different signature. Similarly, if the
private key (𝑆𝐾
) changes, it will lead to a different output message (𝑆𝑀
).
Digital signatures are associated with cryptographic hash functions. Before signing a message,
CHF is being applied on to the message “M” to get a digest. Then, this digest message will be
signed digitally. Two different messages cannot result in the same hash output as they are
collision resistant - the core property of Cryptographic Hash Functions.
Bitcoins are the collective entries into a ledger, which has a record of all historical transactions,
whereas the physical coins have no history. Thus, a transaction is just a digitally signed
declaration by one party of its intent to transfer some Bitcoins to another party
Mechanism of Digital Signature –
Consider a scenario wherein a Sender A wants to transfer a few Bitcoins (10 BTC) to a Recipient
B. Anybody who transacts in the Bitcoin ecosystem would transact by their pseudo name,
known as the public verification key.
Sender A Recipient B
Public Key 𝑃𝐾𝐴
Public Key 𝑃𝐾𝐵
Corresponding Private Key 𝑆𝐾𝐴
Corresponding Private Key 𝑆𝐾𝐵
Assume Sender A was involved in the following transactions
Received 5 BTC from C (𝑃𝐾𝐶
) --- HASH FUNCTION --- Digest - (𝐷𝐶
)
Received 10 BTC from D (𝑃𝐾𝐷
) --- HASH FUNCTION --- Digest - (𝐷𝐷
)
Sent 3 BTC to E (𝑃𝐾𝐸
) --- HASH FUNCTION --- Digest - (𝐷𝐸
)
So, Sender A has a total of 12 BTCs, sufficient to send 10BTCs to B. During the transaction
between A & B, the information regarding previous transactions is sent to B. Previous
transaction details are applied with cryptographic hash functions to generate Digests and
these digests are included in the transaction records.
TRANSACTION RECORDS
5

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Anyone in the Bitcoin network can verify the ownership by taking all the previous transactions
that are made public and by applying the cryptographic hash functions to these records to
generate Digests and then by digest matching, ownership of the Bitcoins can be guaranteed.
Transaction Record Creation
Input portion of the
Transaction
Output portion of the
Transaction
𝐷𝐶
𝑃𝐾𝐵
, 10 (Shows that 10 BTC to
be transferred to B)
𝐷𝐷 𝑃𝐾𝐴
, 1 (Shows that remaining
1 BTC to be reverted to A
𝐷𝐸 Sender A’s Private Key 𝑆𝐾𝐴
Sender A will specify the Bitcoins to be sent to Recipient B, the Bitcoins which are being
reassigned to A and the private key of A to digitally sign the data. This will effectively bind A’s
identity with the transaction record. Over here, the remainder Bitcoins that’s 1 BTC will be
used as the transaction fee for a Bitcoin miner – it is an entity in the Bitcoin ecosystem that
helps in the broader validation of the transaction
The recipient B can validate these, but cannot be sure of whether A has sent the same amount
of Bitcoins to another recipient, so even though the transactions are made public, there is a
need for a decentralized mechanism, so that any disputes about someone trying to double
spend their coins can be resolved. This requirement of having a decentralized timestamp
results in the need for Bitcoin Miners, who play an important role in the Bitcoin ecosystem
Proof of work protocols, is a means by which someone can effectively prove that they (miners)
are engaged in a significant amount of computational effort.
Consider a scenario wherein a miner randomly picks up a set of transaction records, calls it a
challenge string (C) and he tries to come up with a proof that is tied to this challenge and the
response associated with proof has a special mathematical property in relation to the
challenge.
Broadcasted
Bitcoin
Ecosystem
PROOF OF WORK
6

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Over here, the miner will come up with a proof of response string (P). Miner has to come up
with such a string, which when concatenated with the challenge and applied a hash function,
the output should possess a certain property as specified in the Bitcoin network. It can be like
a certain number of zeroes to be prefixed in the hash output. Assume it to be say 40.
To get the output with 40 bits as zero, the miners have to perform 240
steps, i.e. 240
=
1 trillion. Hence probability of getting a proper hash output will be one in a trillion, which
means more computational effort is required to come up with a correct proof of string. For
every increase in the requirement for the number of leading zeroes, computational effort
doubles. If the hash output has the required amount of leading zeroes, then the miner has
come up with a valid proof of work string.
As there is no centralized mechanism, a major question arises about the double spending of
the Bitcoin in a Bitcoin ecosystem by any actor but the fact is, the economic incentive involved
in the Bitcoin system for different players makes them behave fairly. Consider a scenario
wherein someone might try to defraud the system. Assume party A has 10 Bitcoins and wants
to spend them all to buy some item. So A will create a transaction record consisting of previous
transactions which resulted in him having 10 Bitcoins.
Hash
Function
𝑺𝑴
𝑷𝒓𝒐𝒐𝒇 𝒐𝒇 𝑾𝒐𝒓𝒌 (P)
𝑪𝒉𝒂𝒍𝒍𝒆𝒏𝒈𝒆 (𝑪)
DOUBLE SPENDING
Security of Transaction Block Chains
7

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Transaction record Creation
A to B Send 10 BTC
C to A Receive 7 BTC
D to A Receive 2 BTC
E to A Receive 1 BTC
This transaction record is broadcasted to the entire ecosystem, particularly to Recipient B and
all the Bitcoin miners, including B will do the broader validation of the transaction. Bitcoin
miners will look into the transaction block chain starting from the genesis block which is in
public. They can verify the details of every transaction that occurred. Miners collectively try
to take all these transactions and add them as a part of a new transaction block to the end of
the transaction block chain. In order to add, they have to solve something called as the Proof
of Work puzzle.
It might take around 1 – 2 years to solve a single puzzle. But, as many miners are involved, the
collective computational effort gets it resolved in an average time of 10 minutes. Each Proof
of work that is associated with a transaction block has a difficulty score associated with it
which indicates how hard it was to solve the proof of work puzzle.
Bitcoin system always works on the principle that everyone will accept that transaction block
chain which involved most work, that is the chain with the highest summation value of
difficulty scores.
Now assume along with the transaction (A to B), A wants to defraud the system by sending
the same amount to F. Then for A to create a transaction block by adding that transaction
record in it, he has to solve the Proof of work puzzle himself. Not only that, he has to solve
the proof of work for the subsequent blocks in order to outrun the chain. So the amount of
computational efforts and resources required to outpace the honest nodes is enormous. This
is the reason why fraudulent transactions are next to impossible. Incentive here is the
transaction fee/miner fee which the successful miner receives. For A, instead of involving in
New
Transaction
Block – N
New
Transaction
Block – N-1
New
Transaction
Block – N-2 New
Transaction
Block –> 0
Difficulty
Score – D0
Transaction Block Chain
Difficulty
Score – DN-2
Difficulty Score
– DN-1
Difficulty Score
– DN

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fraud, it is better to be a legitimate miner and reap benefits. Hence, the security of Bitcoin
ecosystem comes from the mathematical barrier involved in solving the proof of work puzzle
and from the economic incentives offered to the miners.
i. Bitcoin payment though low in volume can help a merchant in two ways.
a. Gives the merchant visibility, since Bitcoin is a news item most of the time. It
might also offer competitive advantage among Bitcoin enthusiasts.
b. The transaction cost is extremely low given there is no reversal or chargeback.
ii. Merchants can start accepting using Bitcoins in the following ways:-
c. Just display a logo of Bitcoin acceptance and ask the customer to call you to
make payment to your wallet.
d. The most common way of accepting Bitcoin payments is through smart
phone/tablet in conjunction with a QR code. The QR code can be scanned by
any customer with a smart phone/tablet and he can use his Bitcoin wallet to
pay to the merchant. The QR code will have the public key of the merchant.
e. There is also a custom hardware available to integrate Bitcoin with the POS
terminals.
iii. For tax handling, Bitcoin income can be handled exactly like cash income.
i. Bitcoin can act as an alternate payment option to networks such as Paypal and card
processing networks like VISA.
ii. Advantages include:-
a. It is cheaper especially due to no reversal/chargeback. The main argument
against this is that, Bitcoin is extremely volatile and hence not inherently
cheap. But that is due to the low trade volumes of present day. It will not be so
if Bitcoin is accepted more in the future. This is a very big advantage for
remittances industry which is worth $500 billion.
b. It is censorship free. Hence countries where there are capital controls, end
users might want to use Bitcoin (where virtual currency is not illegal).
BITCOIN ECONOMY
8
8.1 Opportunities for Merchants
8.2 Opportunities for Technology
Providers such as Altimetrik

22. 22 | P a g e
c. It is faster for peer to peer transfers. The transaction is usually verified
immediately and the addition to blockchain by miners takes less than 10
minutes. Compared to telegraphic transfers or NEFT this is a big advantage.
d. For micropayments there is a huge advantage with Bitcoin. Bitcoin protocol has
a feature called the micropayments channels feature. Essentially you transmit
one large transaction to the network (you can think of this like a deposit, say
of $10), then you conduct as many tiny transactions between payer and payee
not broadcast to the network (therefore ‘free’), and finally you broadcast how
much of the initial amount remains with each party. What this means is that,
you can now offer metered services based on micro-transactions.
e. Another important part of the Bitcoin protocol is that it does not restrict you
to use only Bitcoin currency. It is open source and can be used to support any
currency. The used currency only needs to be converted to and from Bitcoin
currency during the few minutes of transaction time.
Currently payments are transmitted and processed using:-
i. Card payment associations such as Visa, MasterCard, Diners, American Express. They
use the typical acquirer bank, issuer bank model and help these banks with settlement
and reconciliation
ii. Telecom networks such as Airtel (Airtel Money), Vodafone (mpesa). Third party
technology providers or mobile operators leverage the existing telecom network
themselves using protocols such as USSD, GPRS to initiate and process payments. In
an open loop model, the platforms are also integrated with issuer banks for accessing
bank accounts and enabling card payments
iii. Third party independent payment systems such as Paypal. These networks are usually
built on the Internet and operate as an independent platform for payments and
transfers. They also integrate with card associations such as Visa and banks for
enabling seamless payments and transfers
iv. Bitcoin is an alternate payment system providing its own network and infrastructure
for peer to peer payments. Today Bitcoin payment system is enabled to use only
“Bitcoins” as currency (“Bitcoins” are a digital virtual currency with no form in the real
world). Other currencies including real world fiat currencies such as US Dollar, Euro or
Indian Rupee cannot be used for transactions on the Bitcoin network
9 CONCEPT IDEA

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i. The idea is to leverage the Bitcoin network for everyday payments and transfers using
fiat currencies such as US Dollar, Euro or Indian Rupee.
ii. For this we need to encapsulate the Bitcoin network and the “Bitcoins” currency from
the end users/consumers
iii. This can be done using a client solution which dynamically converts fiat currencies to
“Bitcoins” and vice-versa. This is possible through integration with Bitcoin exchanges.
As of today, there are Bitcoin ATMs which provide “Bitcoins” in real time for various
fiat currencies.
iv. The client (mobile application) should be able to provide the following functionality
a. Act as a normal mobile wallet to maintain balance in currency of choice for the
user.
b. Funding to the client can happen from a linked bank account using ACH
integration as in the case of any mobile wallet.
c. For initiating a payment, the fiat currency should be converted to “Bitcoins” by
the payer client using a Bitcoin exchange.
d. The payer client should then act as a normal Bitcoin client to initiate the
payment on the Bitcoin network using converted “Bitcoins”
e. The payee client should verify the payment like any Bitcoin client and will be
credited the “Bitcoins” on authentication by the network
f. The “Bitcoins” will then be converted to a fiat currency of the choice of the
payee
Scenario 1
- Payer using proposed client
- Payee (Merchant) using proposed client
- Transaction over Bitcoin network
- Conversion at both payer and payee side
Scenario 2
- Payer using proposed client
- Payee (Merchant) using Bitcoin client (Eg BitPay)
- Transaction over Bitcoin network
- Conversion at Payer
10 PITCH
11 USE CASES: E-commerce Payment

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Scenario 3
- Payer using Bitcoin client ( Eg Coinbase)
- Payee (Merchant) using proposed client
- Transaction over Bitcoin network
- Conversion at Payee
Scenario 4
- Normal existing mobile wallet functionality
Scenario 1
- Payer using proposed client
- Payee using proposed client
- Transaction over Bitcoin network
- Conversion at both payer and payee side
Scenario 2
- Payer using proposed client
- Payee using Bitcoin wallet (Mobile or online)
- Transaction over Bitcoin network
- Conversion at Payer
Scenario 3
- Payer using Bitcoin wallet (Mobile or online)
- Payee using proposed client
- Transaction over Bitcoin network
- Conversion at Payee
Scenario 4
Normal existing mobile wallet functionality
12 USE CASES: Peer to Peer Transfers

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Scenario 1 (Broadcast by Merchant)
- Payer using proposed client or a Bitcoin client
- Payee (Merchant) using proposed client or any Bitcoin client (Eg Bitpay)
- Transaction over Bitcoin network (offline)
- Payer scans the Payee QR code and captures Payee public address
- Payer initiates the payment by an offline request to merchant client (using
NFC)
- Payee verifies payer and then relays the transaction to Bitcoin network for
authentication
- Bitcoin network authenticates and the “Bitcoins” are sent to merchant
client
- Higher risk of fraudulent transaction by payer
Scenario 2 (Broadcast by Payer)
- Payer using proposed client or a Bitcoin client
- Payee (Merchant) using proposed client or any Bitcoin client (E.g. Bitpay)
- Transaction over Bitcoin network (online)
- Payer scans the Payee QR code and captures Payee public address
- Payer initiates the payment by broadcasting the payment request to Bitcoin
network
- Payee receives the transaction information from the network and verifies
the same
- Bitcoin network then authenticates and the “Bitcoins” are sent to merchant
client
- Very little risk of fraud by payer. Safer for merchant
13 USE CASES: Merchant Payments

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 Interest on the outstanding float amount in the client accounts
 Fee on funding the client with fiat currency from linked bank account using ACH
 Fee during conversion of fiat currencies to “Bitcoins” or vice-versa
 Transaction fee when transaction is initiated from the proposed client (can be
charged to payer or payee or both)
 MDR from merchant when transaction is received by the merchant using the
proposed client
 Fees for providing any value added merchant services to merchants using the
proposed client
 Exchange rate spread charged by Bitcoin exchanges
 Bitcoin network fee to miners (Although not mandatory, sometimes for
timely authentication small amount of fee may be needed)
 ACH fee during funding
14 REVENUE SOURCES FOR THE
APPLICATION
15 COSTS FOR THE APPLICATION

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REFERENCES
 https://Bitcoin.org/
 en.wikipedia.org/wiki/Bitcoin
 https://www.weusecoins.com/
 https://github.com/Bitcoin/Bitcoin
 https://blockchain.info/
 https://localBitcoins.com/
 https://mining.Bitcoin.cz/
 historyofBitcoin.org
 www.Bitcoin-economy.com
 www.economicsofBitcoin.com
 Bitcoininsight.com
 en.wikipedia.org/wiki/Secure_Hash_Algorithm
 en.wikipedia.org/wiki/Digital_signature
 www.khanacademy.org
 http://www.coindesk.com/information/how-Bitcoin-mining-works/