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Bitcoin - Introduction, Technical Aspects and Ongoing Developments
- 1. BITCOIN Introduction, Technical Aspects, andOngoing Developments Bernhard Haslhofer, AIT Aljosha Judmayer, SBA Research Austrian Financial Market Authority (FMA) 2015-04-30
- 2. About us -Bernhard Haslhofer • Data Scientist @ Austrian Institute of Technology • “Extracting knowledge from data” • Machine learning, network analytics, data/text mining • Previously • Researcher @ Cornell University, NY, USA • PhD. / Univ. Ass @ University of Vienna • Economics / Computer Science @ Technical University of Vienna +43 664 88390692 bernhard.haslhofer@ait.ac.at 2
- 3. About us -Aljosha Judmayer • PhD @ TU Vienna • “Resilience aspects of distributed systems” • Researcher @ SBA Research GmbH • Previously • IT Security Consultant +43 660 460 888 9 ajudmayer@sba-research.org PGP ID: E687AADD PGP FP: 4016 59DB D4E0 A908 FCDF 7BFB A40D 40AC E687 AADD 3
- 4. Agenda • Introduction toBitcoin • Technical Aspects • Ongoing developments • Questions and Discussion 4
- 5. Agenda • Introduction toBitcoin • Technical Aspects • Ongoing developments • Questions and Discussion 5
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- 7. A virtual currency •Money that is only exchanged electronically • Functions: • Measure of value • Medium of exchange • Store of value • Currency code: XBT • Currency symbol: B⃦ • Exchange rate to other currencies (USD, EUR, …) 7
- 8. • Difference toother currency systems: • no trusted parties • no pre-assumed identities • Also known as “cryptocurrency” A virtual currency 8
- 9. A decentralized, P2P technology •“Decentralized” = no need to trust third party • “Peer-to-Peer (P2P)” = no central authority • collective transaction management (block chain) • collective money issuance (mining) 9
- 10. A community effort •… driven by • enthusiasts • entrepreneurs • developers 10
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- 12. David Chaum (1983) •Conceived eCash • Anonymous electronic money Source: http://de.wikipedia.org/wiki/David_Chaum 12
- 13. Wei Dei (1998) •Describes idea of distributed crypto-currency • B-money: all transactions are publicly (anonymously) broadcasted.
- 14. “Satoshi Nakamoto” (2009) •Published article on mailing list • Designed and implemented original Bitcoin software (until mid 2010) • Created “genesis block” with message “EThe Times 03/Jan/2009 Chancellor on brink of second bailout for banks” ? Bitcoin: A Peer-to-Peer Electronic Cash System Satoshi Nakamoto satoshin@gmx.com www.bitcoin.org Abstract. A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer-to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power. As long as a majority of CPU power is controlled by nodes that are not cooperating to 14
- 15. How do Ipay with Bitcoins? 15
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- 17. Via mobile devices Source:https://www.bitkassa.nl/ Business Owner Customer Source: http://www.wired.com/2014/07/blockchain-back/17
- 18. Using a “fat”client 18
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- 20. Where can Ipay with Bitcoins? 20
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- 23. How do Iacquire Bitcoins? 23
- 24. Earn bitcoins • Bycompleting tasks on Websites (e.g., CoinWorker, BitVisitor) • By receiving salaries (e.g., Internet Archive) • By receiving donations 24
- 25. Buy Bitcoins viaExchange 25
- 26. Buy Bitcoins viaExchange
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- 29. Buy Bitcoins viaVoucher Source: https://www.bitcoinbon.at 29
- 30. Buy Bitcoins atATM Source: https://coinfinity.co/bitcoin-kaufen/ 30
- 31. Mine Bitcoins • “Mining”refers to the process of • adding transaction records to Bitcoin’s public ledger (block chain) of past transactions • creating new Bitcoins • Resource intensive computation (energy costs) • Miners receive • transaction fees • newly created coins 31
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- 33. How does theoverall Bitcoin market look like? 33
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- 43. The Big Picture P2PNetwork Broadcast Transaction Blockchain 43
- 44. The Big Picture P2PNetwork Blockchain Miners Collect pending Transactions 44
- 45. The Big Picture P2PNetwork Blockchain Miners Find a block 45
- 46. The Big Picture P2PNetwork Blockchain Miners Broadcast new block 46
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- 49. Agenda • Introduction toBitcoin • Technical Aspects • Ongoing developments • Questions and Discussion 49
- 50.
- 51. Agenda • Introduction toBitcoin • Technical Aspects • Ongoing developments • Questions and Discussion 51
- 52. BITCRIME • Bitcoin’s historyalso has association with crime • Silk Road (Feb. 2011 - Oct. 2013) • Bots are placed for mining purposes • Bitcoin-based Ponzi schemes (US federal court) • CryptoLocker (2014) -> encrypt file, demand ransom to release decryption key • Theft • Collapsed exchanges (e.g., Mt. Gox liquidated in 2014) 52
- 53. BITCRIME • Bilateral (AT/DE)research project (KIRAS) • Prevention and prosecution of organized crime in virtual currencies • Interdisciplinary team (policy makers, law enforcement, data scientists, security researchers) • https://www.bitcrime.de/ 53
- 54. Technical Part • Blockchainanalytics tool • find details about addresses, transactions • merge addresses into entities • search for graph patterns • direct/indirect flow of bitcoins between addresses • money laundering patterns 54
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- 56. Technical Part • (Dark)Web Crawler • find bitcoin addresses in the (dark) web • extract additional contextual information • integrate with Blockchain analytics tool 56
- 57. Alternative Applications for Bitcoin(A2Bit) • FFG Bridge Early Stage • Reuse concept of block chains and proof-of-* for alternative • applications beyond currency • Generalising the Bitcoin protocol for trustworthy distributed key- value stores • work based on approaches taken in Namecoin • possible applications: public key exchange, identity management • Platform, time-stamping service, digital rights management, twitter clone, alternative domain name system, ... 57
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- 59. MIT Digital CurrencyInitiative • Goal: create a safe, stable and secure digital currency • Conduct research (security, stability, scalability) • Test concepts that have high social standards • Evidence-based research to support existing and future policy and standards Source: https://bitcoinmagazine.com/20040/mit-media-lab-announces-launch-mit-digital-currency-initiative-headed-former-white-house-senior-adviser/59
- 60. Digital currencies: response tothe call for information Source: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/414040/ digital_currencies_response_to_call_for_information_final_changes.pdf
- 61. –Bonneau et al.(2015) “Bitcoin is a rare case where practice seems to be ahead of theory. We consider that a tremendous opportunity for the research community to tackle the many open questions about Bitcoin which we have laid out.” 61
- 62. References • Nakamoto, S.(2011). Bitcoin: A Peer-to-Peer Electronic Cash System. Available at: https:// bitcoin.org/bitcoin.pdf • Bonneau, J. et al. (2015). Research Perspectives and Challenges for Bitcoin and Cryptocurrencies 62