bitcoin tutorial (eff)

8/11/2019 Bitcoin Tutorial (EFF)

1/41

Bitcoin Tutorial

Joseph Bonneau

Thanks to Andrew Miller, Arvind Narayanan, Jeremy Clark, Joshua K


2/41

Bitcoin has many different part


3/41

Part I: Bitcoin in 6 easy s


4/41

Double spending: why ecash is

Alice

BobSignA(Transfer X to B)

CharlieSignA(Transfer X to C)

SignZ(Transfer X to A)

Redeem X?

Redeem X?


5/41

Step 1: Make the bank a global

SignA(Transfer X to C)

...SignA(Transfer X to B)

...

(the block

SignatureBANK

SignatureBANK

SignatureBANK

SignatureBANK


6/41

Step 2: Participants vote on blo

SignatureA SignatureB SignatureC ...

SignatureA SignatureB SignatureC ...

SignatureA SignatureB SignatureD ...


7/41

Step 3: A random user picks

N-2

N-1SignatureB

SignatureA

NSignatureC

N

C


8/41

Step 4: Resolve conflicts by for

SignA(Transfer X to B)SignatureB

SignatureA

SignA(Transfer X to C)SignatureC Sign

Sign


9/41

Step 5: Incentivise correct bloc

SignatureB

SignatureA

SignatureC Sign

Sign

Mint(X, A)

Mint(X, B)

Mint(X, D)

Mint(X, E)

Mint(X, C)


10/41


11/41

Step 6: Choose by hash power!

Mint(X, A)

Mint(X, B)

Mint(X, C)

SHA-256(BlockN-1, n) = 0x00000000

SHA-256(BlockN-1, n) = 0x0000000

Mining

Mining


12/41

Preventing double spending

SignA(Transfer X to B) SignA(Transfer X to C)SignA(Transfer X to B)

Longest cha in


13/41

Transaction confirmation (~6 bl


14/41

Bitcoin is t ransact ion-based

IN:scriptSig ...scriptSig ...

OUT:scriptPub A,

5.9

...

...

IN:scriptSig A

OUT:scriptPubB,

5.0scriptPubA,

0.9

IN

OU

10

IN:scriptSig ...

OUT:scriptPubA,

9.2

...


15/41

Bitcoin transactions specify sc

scriptPubKey:OP_DUP OP_HASH160 OP_EQUALVERIFY

IN:scriptSig ...

scriptSig ...OUT:scriptPub A,

5.9

IN:scriptSig A

OUT:scriptPubB,

5.0scriptPubA,

0.9

OP_DUP OP_HASH160 OP_EQUALVERIF

scriptSig:

Redemption script:


16/41

Bitcoin transactions specify sc

OP_DUP OP_HASH160 OP_EQUALVERIF


17/41

Bitcoin script features

multiple signatures escrow time locking commitment opening

...

smart contracts?


18/41

Part II: Mining & Consen


19/41

51% attacks

G


20/41

Checkpointing

How decentralized is Bitcoin?


21/41

Selfish mining

Observation: for 0.33 < x< 0.5, a fraction xof selfish m

can earn greater than a fraction xof rewards

Secret Block

Secret Block

Majority is not enough: Bitcoin mining is vulnerable

Ittay Eyal and Emin Gn Sirer. Financial Crypto 2014


22/41

Mining difficulty


23/41

Difficulty adjustment

10 minutes

2 weeks


24/41

Mining rewards


25/41

Total network capacity

264hashes per block (every 10 minute 275hashes in 2013

o In exchange for ~US$250M Consuming > 100 MW


26/41

Bitcoin mining hardware


27/41

Should I mine bitcoins?

Chilkoot paKlondike 18


28/41

Mining pools Mint(25,0x000000000

0x000000000000490c6b00...

0x00000000x0000000000001e8709ce...

0x00000000000007313f89... 0x0000000

0x000000000000a877902e...


29/41

Mining pools


30/41

Part III: Bitcoin as a curr


31/41

Why does Bitcoin have value?

Consensus

Consensus in state (blockchain) Consensus in payment

Consensus in rules

The Economics of Bitcoin Mining, or Bitcoin in the Presence of Advers

Joshua Kroll, Ian Davey, Ed Felten. WEIS 2013


32/41

Price during 2013


33/41

Black Markets

Silk Road: US$14M in Revenue in 2012 [Christin 2012

Traveling the Silk Road: A measurement analysis of a large anonymous online

Nicolas Christin, WWW 2013


34/41

Capital controls


35/41

E-commerce


36/41

Bitcoin exchanges

Beware the middleman: Empirical analysis of Bitcoin-exchange risk

Tyler Moore and Nicolas Christin, Financial Crypto 2013


37/41

Bitcoin ATMs


38/41

Bitcoin meetups


39/41

Bitcoin meetups


40/41

Bitcoin limitations

~7transactions per secondo Visa: ~10k tps (peak)

248currency unitso ~32k per person on earth

0.0001 BTCtransaction fees typicalo ~$0.40 US

~60 minutesconfirmation delay

A reserve


41/41

Questions

bitcoin tutorial (eff)

Documents