Bitcoin protocol details about

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Many thousands of articles have been written purporting to explain Bitcoin, the online, peer-to-peer currency. Most of those articles give a hand-wavy account of the underlying cryptographic protocol, omitting many details.

Even those articles which delve deeper often gloss over crucial points. My aim bitcoin protocol details about this post is to explain the major ideas behind the Bitcoin protocol in a clear, easily bitcoin protocol details about way. Understanding the protocol in this detailed way is hard work.

It is tempting instead to take Bitcoin as bitcoin protocol details about, and to engage in speculation about how to get rich with Bitcoin, whether Bitcoin is a bubble, whether Bitcoin might one day mean the end of taxation, and so on. Understanding the details of the Bitcoin protocol opens up otherwise inaccessible vistas. New financial instruments can, in turn, be used to create new markets and to enable new forms of collective human behaviour.

This post concentrates on explaining the nuts-and-bolts of the Bitcoin protocol. To understand the post, you need to be comfortable with public key cryptographyand bitcoin protocol details about the closely related idea of digital signatures. None of this is especially difficult.

The basic ideas can be taught in freshman university mathematics or computer science classes. In the world of atoms we achieve security with devices such as locks, safes, signatures, and bank vaults.

In the world of bits we achieve this kind of security with cryptography. My strategy in the post is to build Bitcoin up in stages. We will have reinvented Bitcoin! This strategy is slower than if I explained the entire Bitcoin protocol in one shot. But while you can understand the mechanics of Bitcoin through such a bitcoin protocol details about explanation, it would be difficult to understand why Bitcoin is designed the way it is.

The advantage of the slower iterative explanation is that it gives us a much sharper understanding of each element of Bitcoin. You may find these interesting, but you can also skip them entirely without losing track of the main text. On the face of it, a digital currency sounds impossible. If Alice can use a string of bits as money, how can we prevent her from using the same bit string over and over, thus minting an infinite supply of money?

Or, if we can somehow solve that problem, how can we prevent someone else forging such a string of bits, and using that to steal from Alice? These are just two of the many problems that must be overcome in order to use information as money.

Suppose Alice wants to give another person, Bob, an infocoin. She then digitally signs the message using a private cryptographic key, and announces the signed string of bits to the entire world. A similar useage is common, though not universal, in the Bitcoin world. But bitcoin protocol details about does have some virtues. So the bitcoin protocol details about establishes that Alice truly intends to give Bob one infocoin.

The same fact — no-one else could compose such a signed message — also gives Alice some limited protection from forgery.

To make this explicit: Bitcoin protocol details about protocols will be similar, in that all our forms of digital money will be just more and more elaborate messages [1]. A problem with the first version of Infocoin is that Alice could keep sending Bob the same signed message over and over.

Does that mean Alice sent Bob ten different infocoins? Was her bitcoin protocol details about accidentally duplicated? Perhaps she was trying to trick Bob into believing that she had given him ten different infocoins, when the message only proves bitcoin protocol details about the world that she intends to transfer one infocoin. They need a label or serial number. To make this scheme work we need a trusted source of serial numbers for the infocoins. One way to create such a source is to introduce a bank.

This bank would provide serial numbers for infocoins, keep track of who has which infocoins, and verify that transactions really are legitimate.

Instead, he contacts the bank, and verifies that: This last solution looks pretty bitcoin protocol details about. However, it turns out that we can do something much more ambitious. We can eliminate the bank entirely from the protocol. This changes the nature of the currency considerably. It means that there is no longer any single organization in charge of the currency.

The idea is to make it so everyone collectively is the bank. You can think of this as a shared public ledger showing all Infocoin transactions. Now, suppose Alice wants to transfer an infocoin to Bob.

A more challenging problem is that this protocol allows Alice to cheat by double spending her infocoin.

And so they will both accept the transaction, and also broadcast their acceptance of the transaction. How should other people update their block chains?

There may be no easy way to achieve a consistent bitcoin protocol details about ledger of transactions. And even if everyone can agree on a consistent way to update their block chains, there is still the problem that either Bob or Charlie will be cheated. At first glance double spending seems difficult for Alice to pull off. After all, if Alice sends the message first to Bob, then Bob can verify the message, and tell everyone else in the network including Charlie to update their block chain.

Once that has happened, Charlie would no longer be fooled by Alice. So there is most likely only a brief period of time in which Alice can double spend. Worse, there are techniques Alice could use to bitcoin protocol details about that period longer. She could, for example, use network traffic analysis to find times when Bob and Charlie are likely to have a lot of latency in communication.

Or perhaps she could do something to deliberately disrupt their communications. If she can slow communication even a little that makes her task of double spending much easier. How can we address the problem of double spending? Rather, he should broadcast the possible transaction to the entire network of Infocoin users, bitcoin protocol details about ask them to help determine whether the transaction is legitimate.

If they collectively decide that the transaction is okay, then Bob can accept the infocoin, and everyone will update their block chain.

Also as before, Bob does a sanity check, using his copy of the block chain to check that, indeed, the coin currently belongs to Alice. But at that point the protocol is modified. Other members of the network check to see whether Alice owns that infocoin. This protocol has many imprecise elements at present. Fixing that problem will at the same time have the pleasant side effect of making the ideas above much more precise.

Suppose Alice wants to double spend in the network-based protocol I just bitcoin protocol details about. She could do this by taking over the Infocoin network.

As before, she tries to double spend the same infocoin with both Bob and Charlie. The idea is counterintuitive and involves a combination of two ideas: The benefit bitcoin protocol details about making it costly to validate transactions is that validation can no longer be influenced by the number of network identities someone controls, but only by the total computational power they can bring to bear on validation.

But to really understand proof-of-work, we need to go through the details. For instance, another network user named David might have the following queue of pending transactions:. David checks his copy of the block chain, and bitcoin protocol details about see that each transaction is valid. He would like to help out by broadcasting news of that validity to the entire network. However, bitcoin protocol details about doing that, as part of the validation protocol David is required to solve a hard computational puzzle — the proof-of-work.

What puzzle does David need to solve? Bitcoin uses the well-known SHA hash function, but any cryptographically secure hash function bitcoin protocol details about do. Suppose David appends a number called the nonce to and hashes the combination. The puzzle David has to solve — the proof-of-work — is to find a bitcoin protocol details about such bitcoin protocol details about when we append to and hash the combination the output hash begins with a long run of zeroes.

The puzzle can be made more or less difficult by varying the number of zeroes required to solve the puzzle. A relatively simple proof-of-work puzzle might require just three or four zeroes at the start of the hash, while a more difficult proof-of-work puzzle might require a much longer run of zeros, say 15 consecutive zeroes.

We can keep trying different values for the nonce. Finally, at we obtain:. This nonce gives us a string of four zeroes at the beginning of the output of the hash. This will be enough to solve a simple proof-of-work puzzle, but not enough to solve a more difficult proof-of-work puzzle. What makes this puzzle hard to solve is the fact that the output from a cryptographic hash bitcoin protocol details about behaves like a random number: So if we want the output hash value to begin with 10 zeroes, say, then David will need, on average, to try different values for before he finds bitcoin protocol details about suitable nonce.

In fact, the Bitcoin protocol gets quite a fine level of control over the bitcoin protocol details about of the puzzle, by using a slight variation on the proof-of-work puzzle described above. This target is bitcoin protocol details about adjusted to ensure that a Bitcoin block takes, on average, about ten minutes to validate.

In practice there is a sizeable randomness in how long it takes to validate a block — sometimes a new block is validated in just a minute or two, other times it may take 20 minutes or even longer. Instead of solving a single puzzle, we can require that multiple puzzles be solved; with some careful design it is possible to considerably reduce the variance in the time to validate a block of transactions. Other participants in the Infocoin network can verify that is a valid solution to the proof-of-work puzzle.

And they then update their block chains to include the new block of transactions. For the proof-of-work idea to have any chance of succeeding, network users need an incentive to help validate transactions.

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The bitcoin network is a peer-to-peer payment network that operates on a cryptographic protocol. Users send and receive bitcoins , the units of currency, by broadcasting digitally signed messages to the network using bitcoin cryptocurrency wallet software. Transactions are recorded into a distributed, replicated public database known as the blockchain , with consensus achieved by a proof-of-work system called mining.

Satoshi Nakamoto , the designer of bitcoin claimed that design and coding of bitcoin begun in The network requires minimal structure to share transactions. An ad hoc decentralized network of volunteers is sufficient. Messages are broadcast on a best effort basis, and nodes can leave and rejoin the network at will. Upon reconnection, a node downloads and verifies new blocks from other nodes to complete its local copy of the blockchain.

A bitcoin is defined by a sequence of digitally signed transactions that began with the bitcoin's creation, as a block reward. The owner of a bitcoin transfers it by digitally signing it over to the next owner using a bitcoin transaction, much like endorsing a traditional bank check. A payee can examine each previous transaction to verify the chain of ownership.

Unlike traditional check endorsements, bitcoin transactions are irreversible, which eliminates risk of chargeback fraud. Although it is possible to handle bitcoins individually, it would be unwieldy to require a separate transaction for every bitcoin in a transaction.

Common transactions will have either a single input from a larger previous transaction or multiple inputs combining smaller amounts, and one or two outputs: Any difference between the total input and output amounts of a transaction goes to miners as a transaction fee.

To form a distributed timestamp server as a peer-to-peer network, bitcoin uses a proof-of-work system. The signature is discovered rather than provided by knowledge. Requiring a proof of work to provide the signature for the blockchain was Satoshi Nakamoto's key innovation.

While the average work required increases in inverse proportion to the difficulty target, a hash can always be verified by executing a single round of double SHA For the bitcoin timestamp network, a valid proof of work is found by incrementing a nonce until a value is found that gives the block's hash the required number of leading zero bits.

Once the hashing has produced a valid result, the block cannot be changed without redoing the work. As later blocks are chained after it, the work to change the block would include redoing the work for each subsequent block. Majority consensus in bitcoin is represented by the longest chain, which required the greatest amount of effort to produce.

If a majority of computing power is controlled by honest nodes, the honest chain will grow fastest and outpace any competing chains.

To modify a past block, an attacker would have to redo the proof-of-work of that block and all blocks after it and then surpass the work of the honest nodes. The probability of a slower attacker catching up diminishes exponentially as subsequent blocks are added. To compensate for increasing hardware speed and varying interest in running nodes over time, the difficulty of finding a valid hash is adjusted roughly every two weeks.

If blocks are generated too quickly, the difficulty increases and more hashes are required to make a block and to generate new bitcoins. Bitcoin mining is a competitive endeavor. An " arms race " has been observed through the various hashing technologies that have been used to mine bitcoins: Computing power is often bundled together or "pooled" to reduce variance in miner income. Individual mining rigs often have to wait for long periods to confirm a block of transactions and receive payment.

In a pool, all participating miners get paid every time a participating server solves a block. This payment depends on the amount of work an individual miner contributed to help find that block. Bitcoin data centers prefer to keep a low profile, are dispersed around the world and tend to cluster around the availability of cheap electricity. In , Mark Gimein estimated electricity consumption to be about To lower the costs, bitcoin miners have set up in places like Iceland where geothermal energy is cheap and cooling Arctic air is free.

A rough overview of the process to mine bitcoins is: By convention, the first transaction in a block is a special transaction that produces new bitcoins owned by the creator of the block. This is the incentive for nodes to support the network. The reward for mining halves every , blocks. It started at 50 bitcoin, dropped to 25 in late and to Various potential attacks on the bitcoin network and its use as a payment system, real or theoretical, have been considered. The bitcoin protocol includes several features that protect it against some of those attacks, such as unauthorized spending, double spending, forging bitcoins, and tampering with the blockchain.

Other attacks, such as theft of private keys, require due care by users. Unauthorized spending is mitigated by bitcoin's implementation of public-private key cryptography.

For example; when Alice sends a bitcoin to Bob, Bob becomes the new owner of the bitcoin. Eve observing the transaction might want to spend the bitcoin Bob just received, but she cannot sign the transaction without the knowledge of Bob's private key. A specific problem that an internet payment system must solve is double-spending , whereby a user pays the same coin to two or more different recipients. An example of such a problem would be if Eve sent a bitcoin to Alice and later sent the same bitcoin to Bob.

The bitcoin network guards against double-spending by recording all bitcoin transfers in a ledger the blockchain that is visible to all users, and ensuring for all transferred bitcoins that they haven't been previously spent. If Eve offers to pay Alice a bitcoin in exchange for goods and signs a corresponding transaction, it is still possible that she also creates a different transaction at the same time sending the same bitcoin to Bob. By the rules, the network accepts only one of the transactions.

This is called a race attack , since there is a race which transaction will be accepted first. Alice can reduce the risk of race attack stipulating that she will not deliver the goods until Eve's payment to Alice appears in the blockchain. A variant race attack which has been called a Finney attack by reference to Hal Finney requires the participation of a miner.

Instead of sending both payment requests to pay Bob and Alice with the same coins to the network, Eve issues only Alice's payment request to the network, while the accomplice tries to mine a block that includes the payment to Bob instead of Alice.

There is a positive probability that the rogue miner will succeed before the network, in which case the payment to Alice will be rejected. As with the plain race attack, Alice can reduce the risk of a Finney attack by waiting for the payment to be included in the blockchain.

Each block that is added to the blockchain, starting with the block containing a given transaction, is called a confirmation of that transaction. Ideally, merchants and services that receive payment in bitcoin should wait for at least one confirmation to be distributed over the network, before assuming that the payment was done.

Deanonymisation is a strategy in data mining in which anonymous data is cross-referenced with other sources of data to re-identify the anonymous data source. Along with transaction graph analysis, which may reveal connections between bitcoin addresses pseudonyms , [20] [25] there is a possible attack [26] which links a user's pseudonym to its IP address.

If the peer is using Tor , the attack includes a method to separate the peer from the Tor network, forcing them to use their real IP address for any further transactions. The attack makes use of bitcoin mechanisms of relaying peer addresses and anti- DoS protection. Each miner can choose which transactions are included in or exempted from a block. Upon receiving a new transaction a node must validate it: To carry out that check the node needs to access the blockchain.

Any user who does not trust his network neighbors, should keep a full local copy of the blockchain, so that any input can be verified. As noted in Nakamoto's whitepaper, it is possible to verify bitcoin payments without running a full network node simplified payment verification, SPV. A user only needs a copy of the block headers of the longest chain, which are available by querying network nodes until it is apparent that the longest chain has been obtained.

Then, get the Merkle branch linking the transaction to its block. Linking the transaction to a place in the chain demonstrates that a network node has accepted it, and blocks added after it further establish the confirmation. While it is possible to store any digital file in the blockchain, the larger the transaction size, the larger any associated fees become. The use of bitcoin by criminals has attracted the attention of financial regulators, legislative bodies, law enforcement, and the media.

Senate held a hearing on virtual currencies in November Several news outlets have asserted that the popularity of bitcoins hinges on the ability to use them to purchase illegal goods. A CMU researcher estimated that in , 4. Due to the anonymous nature and the lack of central control on these markets, it is hard to know whether the services are real or just trying to take the bitcoins.

Several deep web black markets have been shut by authorities. In October Silk Road was shut down by U. Some black market sites may seek to steal bitcoins from customers. The bitcoin community branded one site, Sheep Marketplace, as a scam when it prevented withdrawals and shut down after an alleged bitcoins theft.

According to the Internet Watch Foundation , a UK-based charity, bitcoin is used to purchase child pornography, and almost such websites accept it as payment. Bitcoin isn't the sole way to purchase child pornography online, as Troels Oertling, head of the cybercrime unit at Europol , states, "Ukash and Paysafecard Bitcoins may not be ideal for money laundering, because all transactions are public.

In early , an operator of a U. Securities and Exchange Commission charged the company and its founder in "with defrauding investors in a Ponzi scheme involving bitcoin". From Wikipedia, the free encyclopedia. For a broader coverage related to this topic, see Bitcoin. Information technology portal Cryptography portal.

Archived from the original on 3 November Retrieved 2 November Retrieved 30 January Retrieved 20 December Financial Cryptography and Data Security. Retrieved 21 August Retrieved 3 October Retrieved 9 January

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