Bitcoin: A Peer-to-Peer Electronic Cash System

PARAS JAINTE CMPN-A-46

Satoshi NakamotoOctober 21, 2008

(Anonymous Programmers)

OUTLINE FOR THE SEMINAR1.What Is Bitcoin

2.Abstract

3.Problem Definition

4.Literature Survey

5.Getting Started With Bitcoin

6.What Is Bitcoin Mining

7.How Bitcoin Works

8.Architecture From The Paper

9.Implementation

10.Conclusion

11.References

WHAT IS BITCOIN

• First Decentralized Digital Currency

• No Bank, Very Less Fee

• P2p(no Third Party Involved)

• No Prerequisite And Limit

• Can Be Used Anywhere Across The World

• Transaction Are High Speed, Low Cost, Secured

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.

• 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.

PROBLEM DEFENITION• Commerce on the Internet has come to rely almost

exclusively on financial institutions serving as trusted third parties to process electronic payments.

• Completely non-reversible transactions are not really possible, since financial institutions cannot avoid mediating disputes.

• What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party

LITERATURE SURVEY

2008 2009 2010 2011 2012 2013 2014

BTC

IN $

25

50

75

100

125

150

1200

600

October 31, 2008Bitcoin announced

January 11, 2009First Bitcoin client released

February 6, 2010Bitcoin Market – first

exchange – is founded

May 21, 2010First real-world goods purchased

July 17, 2010MtGox is established

March 21, 2011Bitcoin user survives 3 month

road trip on bitcoin alone

YEAR

March 28, 2013Total Bitcoin market cap

passes $1 billion USD

600 600

32

100

10

1

1200

February 28, 2013MtGox Exchange rate nears nearly $32 USD

September 27, 2012Bitcoin Foundation

established

GETTING STARTED WITH BITCOIN

STEP:1Image: http://www.bitcoins.com/

STEP:2 STEP:31)Purchasing Bitcoins2)Earn Bitcoins3)Mining Bitcoins

Image: http://www.bitcoins.com/

WALLETS EXCHANGE

• Blockchain (Recommended)• Coinbase• Coinjar• Coinpunk

•BitcoinQT(original Satoshi wallet)•Armory•Multibit

•Blockchain (Recommended)•CoinJar•Coinpunk

WHAT IS BITCOIN MINNING

• Bitcoin Is A P2P Network ,No Centralized

Government

• Bitcoin Has Miners

• To Process The Transaction The Miners

Solve The Math Problem

• After The Transaction Is Approved, Miners

Are Given Rewards(i.e. Bitcoin)

HOW BITCOIN WORKS

Image: http://www.bitcoins.com/

TECHNICAL BACKGROUND• During mining, your computer runs a cryptographic hashing function (two

rounds of SHA256) on what is called a block header.• For each new hash, the mining software will use a different number as the

random element of the block header, this number is called the nonce.• Depending on the nonce and what else is in the block the hashing function will

yield a hash which looks like this: 93ef6f358fbb998c60802496863052290d4c63735b7fe5bdaac821de96a53a9a

• Now to make mining difficult, there is what's called a difficulty target.• To create a valid block your miner has to find a hash that is below the difficulty

target. So if for example the difficulty target is 1000000000000000000000000000000000000000000000000000000000000000 ,any number that starts with a zero would be below the target, e.g.: 0787a6fd6e0782f7f8058fbef45f5c17fe89086ad4e78a1520d06505acb4522f

TECHNICAL BACKGROUND CONT…• Because the target is such an unwieldy number with tons of digits, people

generally use a simpler number to express the current target. This number is called the mining difficulty. The mining difficulty expresses how much harder the current block is to generate compared to the first block. So a difficulty of 70000 means to generate the current block you have to do 70000 times more work than Satoshi had to do generating the first block. Though be fair though, back then mining was a lot slower and less optimized.

• The difficulty changes every 2016 blocks. The network tries to change it such that 2016 blocks at the current global network processing power take about 14 days. That's why, when the network power rises, the difficulty rises as well.

ARCHITECTURE FROM THE PAPER

TRANSACTION TIMESTAMP

PROOF-OF-WORK

Paper :https://bitcoin.org/bitcoin.pdf

MINING HARDWARE MINING SOFTWARE• CPU'so In the beginning, mining with a CPU was the only way to

mine bitcoins. Mining this way via the original Satoshi client is how the bitcoin network started. This method is no longer viable now that the network difficulty level is so high. You might mine for years and years without earning a single coin.

• GPU'so Soon it was discovered that high end graphics cards

were much more efficient at bitcoin mining and the landscape changed. CPU bitcoin mining gave way to the GPU (Graphical Processing Unit)

• FPGA'soAs with the CPU to GPU transition, the bitcoin mining

world progressed up the technology food chain to the Field Programmable Gate Array.

• ASIC'soThe bitcoin mining world is now solidly in the Application

Specific Integrated Circuit (ASIC) era. An ASIC is a chip designed specifically to do one thing and one thing only.

• BFGminer• CGminer• EasyMiner• BitCoin Plus

MINING POOL• Eclipse• Eligius• BTC Guild

TOTAL NUMBER OF BITCOIN

Image: http://www.bitcoins.com/

IMPLEMENTATIONSTEP 1: INSTALLING THE BITCOIN WALLETBI

TCO

IN W

ALLE

T

IMPLEMENTATIONSTEP 2: INSTALLING THE MINING SOFTWARE

EASY

MIN

ER

CONCLUSION• We have proposed a system for electronic transactions

without relying on trust. • We started with the usual framework of coins made

from digital signatures, which provides strong control of ownership, but is incomplete without a way to prevent double-spending.

• To solve this, we proposed a peer-to-peer network using proof-of-work to record a public history of transactions that quickly becomes computationally impractical for an attacker to change if honest nodes control a majority of CPU power.

REFRENCES• [1] W. Dai, "b-money," http://www.weidai.com/bmoney.txt, 1998.

• [2] H. Massias, X.S. Avila, and J.-J. Quisquater, "Design of a secure timestamping service with minimal trust requirements," In 20th

Symposium on Information Theory in the Benelux, May 1999.

• [3] S. Haber, W.S. Stornetta, "How to time-stamp a digital document," In Journal of Cryptology, vol 3, no 2, pages 99-111, 1991.

• [4] D. Bayer, S. Haber, W.S. Stornetta, "Improving the efficiency and reliability of digital time-stamping," In Sequences II: Methods

in Communication, Security and Computer Science, pages 329-334, 1993.

• [5] S. Haber, W.S. Stornetta, "Secure names for bit-strings," In Proceedings of the 4th ACM Conference on Computer and

Communications Security, pages 28-35, April 1997.

• [6] A. Back, "Hashcash - a denial of service counter-measure,“ http://www.hashcash.org/papers/hashcash.pdf, 2002.

• [7] R.C. Merkle, "Protocols for public key cryptosystems," In Proc. 1980 Symposium on Security and Privacy, IEEE Computer Society,

pages 122-133, April 1980.

• [8] W. Feller, "An introduction to probability theory and its applications," 1957