Bitcoin uses a blockchain to prevent double spending in a distributed system. The blockchain is a global ledger that sorts transactions into a linear order. It is very difficult to rewrite a large portion of the blockchain due to the computational power required to solve puzzles needed to add blocks. This makes double spending improbable without controlling over 50% of the network's hashing power. New blocks are added about every 10 minutes through a proof-of-work process where miners solve difficult puzzles to write blocks and receive bitcoins as a reward.

1. Bitcoin – how does that work?
Zbigniew Łukasiak

2. Distributed money?

3. Design distributed money
● Imagine you received a payment. How can you
determine that it is legitimate?
● What is a payment?
● Maybe like a check – a signed message
declaring that someone sends you money.
● You can check the signature.
● OK – we have ditital signatures :)

4. Design distributed money
● Now you need to check if he really had the
amount that he gave to you.
● There must be some way to generate original
legitimate 'coins'.
● Then you can check (recursively) if the sender
had received the money he sent.

5. Design distributed money
● Simple – just check the signatures and add the
inflows. All data needed can be sent by the
sender in the transaction.
● But there is one problem

6. Double spending

7. Double spending
● What we need is a way to tell which transaction
was first (a global partial order of the
transactions).
● In a centralized system – this is easy – just
write all transactions to a log.
● Unfortunately in a distributed system this is
impossible.

8. CAP theorem – impossible in a
distributed system
● Consistency (all nodes see the same data at the
same time)
● Availability (a guarantee that every request
receives a response about whether it succeeded
or failed)
● Partition tolerance (the system continues to
operate despite arbitrary partitioning due to
network failures)

9. CAP theorem
● That means that we cannot have a distributed
money system that would work as we would
like :(
● But in practice we can relinguish some of the
requirements :)
● Bitcoin is a probabilistic system.

10. Blockchain
● Blockchain is the global ledger that sorts the
transactions into a linear order.
● At any given moment the last part of it can be
different for different observers (partitioning).
● But there is a procedure of moving the
transactions from a one blockchain to another
one.
● This is used to move transactions from a shorter
blockchain to the longer one.

11. Blockchain
● Writing to the
blockchain requires
solving a puzzle that
is so hard, that
statistically only one
computer from the
network will solve it
every 10 minutes.

12. Blockchain
● It is very unlikely that a large portion of the
blockchain is rewrited – because all the time
new blocks are being attached to it.
● It would require cooperation of participants
controlling over 50% of the total network
power.
● Honest participants would do the rewriting
onlly if the other branch is already longer.

13. Double spending
● To double spend you'd need to write one
transaction to the blockchain and then create
another branch containing a conflicting
transaction.
● If the first transaction is deep in the blockchain
this would require rewriting a large portion of
the blockchain and that would require lots of
computing power.

14. Some details
● That hard puzzle needed to write to the
blockchain is finding a number that hashed
together with the block would produce a given
number of '0' at the beginning.
● The required number of '0' (i.e. the „difficulty”)
adjusted to the hashing power of the network –
so statistically it takes about 10 minutes for a
new block on the blockchain.

15. More details
● How bitcoins are generated?
● Transaction fees.
● What if we changed the design to have a block
every minute (everage)?
● Anonymity:
– Single use of addresses
– TOR for sending
● The cost of sustaining the bitcoin network.

16. Questions?