fh campus wien · title: bitcoin: how it works. a lightweight intro to block chains author: ulrich...

Bitcoin: How it works.A lightweight intro to block chains

Ulrich Haböck

Kompetenzzentrum für IT-Security, FH Campus Wien

October 30, 2017

Introduction Bitcoin Basics Wallets and Transactions Blockchain Consensus Blockchain stats How to start?

Speaker

Ulrich Habö[email protected]: 48F796E247BEEDE8.

• PhD Mathematics (University Vienna)• Post-doc TU-Vienna• since 2013 at the Competence Centre for IT-Security, FH Campus Wien• Lecturer Bachelor Information Technology and Telecommunications

as well as Master IT-Security• Focus: mathematics and cryptography


The problem of digital cash

• normal cash: expensive to copy/reproduce.



• digital cash: copy and paste, even when certified (just abunch of data!)

Serial-No:aabcf7...bValue:1.24 UOwner: Mr. Hans PansIssuer: Bank XYZDate:2017/29/02Sig:c60cb9fc0c04bb2e3bcb72c29dffb908e2edaffcbd5e62d8194f3d719632











Double-spending: same certified unit spent twice

A B

C

500 500

500

same coin



One way to prevent double-spending : online log of entiretransaction history


TransactionSerial-No:aabcf7...bTo: Ms. DissFrom: Mr. Hans PansDate:2017/1/03Sig:8a1545cc09a8c027e93380add5f9818ba14382c4d78acff5198f6e46e2b4

TransactionSerial-No:aabcf7...bTo: BC-ComputersFrom: Ms. DissDate:2017/1/03Sig:59a6854d3b7427765a3ea84988779c60720793a8a3fed593ff378c819bf3



Inherent issues:• centralised reglementation (e.g. Bank): set under pressure

easily by powerful players,• decentralised reglementation: robust, secure consensus

necessary


Bitcoin


Bitcoin

• is a digital currency• (partially) anonymous (pseudonymous)• decentralised, based on blockchain technology


Bitcoin

• 1992: E.Hughes, T.May: cipherpunks• 1997,98: Proof of work to mitigate spam emails (hash

cash), W.Dai’s b-money, N.Szabo’s Bit Gold• 2008: S. Nakamoto’s white paper on Bitcoin• Jan 2009: initial release of bitcoin core (Windows), first

bitcoin network in practice


Bitcoin


Bitcoin


Bitcoin


Bitcoin wallets

Every participant (user) can create a wallet full of random keys(Bitcoin addresses)

e.g.

1D3hJ52SXjZamJDSWHN4w6qPwYYDS6zFxq, or3J6atJNyitmTCmoE4e26w5tTceVBtYQ7TY, or1AYDLj29QcTgYNc86umbwdyDV3CgCBvu1f.

addresses are not a-priori bound to any value!


Transactions

tx

−→ signed with the key of incoming address


Transactions

. . . are distributed over Bitcoins P2P-network

tx

tx

tx

txtx

tx

tx

tx

tx

tx

tx

tx

tx

verified & collected by full nodes in Mempool


Blockchain & mining

new block

tx0 tx1

tx2 tx3

tx4 tx5

so-called miners take tx’s from Mempool in block


Blockchain & mining

previous block

tx5tx4

tx3tx2

tx0 tx1

preprevious block

tx5tx4

tx3tx2

tx0 tx1

new block

tx0 tx1

tx2 tx3

tx4 tx5

previous block

tx5tx4

tx3tx2

tx0 tx1found!

Hash(.)= 000...0***...*n zero bits

f9bf1b65...146c03319...1ebc18dd7...9

and solve a block depending puzzle


Blockchain & mining

• When nonce found −→ miner distributes Block + nonceover the network.

• Miner receivesreward (newly generated, mined coins)+ transaction fees


Why the hash puzzle??

Proof of work is essential for stable and robust consensus

+

yields the basis of worth for the currency (like gold was fortraditional currencies)


Difficulty

As of June 2017, hash puzzles have a difficulty of ≈ 75 leadingzero Bits, e.g.

h=0000000000000000002f47c8785c85cd6e7dc5e8249ebb7c9ba065408ec03209


The consensus mechanism

Rule: Truth is defined by the longest chain (minus last fiveblocks)

Not valid! -> mining effort worthless

Not valid!



Hence miners always work on longest chain

• it is the most profit promising• otherwise mining effort eventually rewardless



Stability: forks are not stable!

FIRST!



Stability: forks are not stable!

Uh-Oh!Other chainis longer!

Let's movethere!



Robustness: double spending attack not feasible

tx

tx'in secret

hash race: min. 6 blocks to go



Not feasible 6= impossible

computing power success(% of entire network) probability

≥ 50% 1.40% 0.4930030% 0.1564520% 0.0233110% 0.000595% 0.00001


Blockchain stats

Let’s have a look at https://blockchain.info/

https://blockchain.info/


How to start

Choose wallet software

Be careful, not all wallets offer same features / security −→see https://bitcoin.org


Where can I buy bitcoins?

• online marketplaces, e.g.

• local exchange, e.g. paper wallets


Thank you!


some links

• https://bitcoin.org/en/• https://blockchain.info/• https://bitcoin-austria.at/de• A.M. Antonopoulos, Mastering Bitcoin, O‘Reilly 2014.

• http://zerocash-project.org/• https://www.ethereum.org/

https://bitcoin.org

https://bitcoin.org/en/

https://blockchain.info/

https://bitcoin-austria.at/de

http://zerocash-project.org/

https://www.ethereum.org/

fh campus wien · title: bitcoin: how it works. a lightweight intro to block chains author: ulrich...

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