BITCOIN
Introduction, Technical Aspects,

and Ongoing Developments
Bernhard Haslhofer, AIT
Aljosha Judmayer, SBA Research
...
About us - Bernhard Haslhofer
• Data Scientist @ Austrian Institute of
Technology
• “Extracting knowledge from data”
• Mac...
About us - Aljosha Judmayer
• PhD @ TU Vienna
• “Resilience aspects of
distributed systems”
• Researcher @ SBA Research
Gm...
Agenda
• Introduction to Bitcoin
• Technical Aspects
• Ongoing developments
• Questions and Discussion
4
Agenda
• Introduction to Bitcoin
• Technical Aspects
• Ongoing developments
• Questions and Discussion
5
What are Bitcoins?
6
A virtual currency
• Money that is only exchanged electronically
• Functions:
• Measure of value
• Medium of exchange
• St...
• Difference to other currency systems:
• no trusted parties
• no pre-assumed identities
• Also known as “cryptocurrency”
...
A decentralized, P2P
technology
• “Decentralized” = no need to trust third party
• “Peer-to-Peer (P2P)” = no central autho...
A community effort
• … driven by
• enthusiasts
• entrepreneurs
• developers
10
Who invented Bitcoin?
11
David Chaum (1983)
• Conceived eCash
• Anonymous electronic money
Source: http://de.wikipedia.org/wiki/David_Chaum
12
Wei Dei (1998)
• Describes idea of distributed crypto-currency
• B-money: all transactions are publicly
(anonymously) broa...
“Satoshi Nakamoto” (2009)
• Published article on mailing list
• Designed and implemented original
Bitcoin software (until ...
How do I pay with
Bitcoins?
15
Via web applications
16
Via mobile devices
Source: https://www.bitkassa.nl/
Business Owner Customer
Source: http://www.wired.com/2014/07/blockchai...
Using a “fat” client
18
Using plastic cards
19
Where can I pay with
Bitcoins?
20
21
22
How do I acquire
Bitcoins?
23
Earn bitcoins
• By completing tasks on Websites (e.g.,
CoinWorker, BitVisitor)
• By receiving salaries (e.g., Internet Arc...
Buy Bitcoins via Exchange
25
Buy Bitcoins via Exchange
EUR
EUR
EUR
XBT
XBT
27
Other Exchanges
Buy Bitcoins via Voucher
Source: https://www.bitcoinbon.at
29
Buy Bitcoins at ATM
Source: https://coinfinity.co/bitcoin-kaufen/
30
Mine Bitcoins
• “Mining” refers to the process of
• adding transaction records to Bitcoin’s public ledger (block
chain) of...
Mine Bitcoins
Source: http://99bitcoins.com/20-insane-bitcoin-mining-rigs/#prettyPhoto
How does the overall
Bitcoin market look like?
33
34
35
36
37
38
What are Altcoins?
39
40
Source: http://cryptocoincharts.info/coins/graphicalComparison 41
DEMO
42
The Big Picture
P2P Network
Broadcast
Transaction
Blockchain 43
The Big Picture
P2P Network
Blockchain
Miners
Collect pending
Transactions
44
The Big Picture
P2P Network
Blockchain
Miners
Find a block
45
The Big Picture
P2P Network
Blockchain
Miners
Broadcast new
block
46
P2P Network
Synchronize
Blocks
Blockchain
Receive
Confirmations
The Big Picture
47
P2P Network
Synchronize
Blocks
Blockchain
Receive
Confirmations
The Big Picture
48
Agenda
• Introduction to Bitcoin
• Technical Aspects
• Ongoing developments
• Questions and Discussion
49
Blockchain
Transactions
H
ash
Asymmetric

Encryption
Mining
….
50
Agenda
• Introduction to Bitcoin
• Technical Aspects
• Ongoing developments
• Questions and Discussion
51
BITCRIME
• Bitcoin’s history also has association with crime
• Silk Road (Feb. 2011 - Oct. 2013)
• Bots are placed for min...
BITCRIME
• Bilateral (AT/DE) research project (KIRAS)
• Prevention and prosecution of organized crime in
virtual currencie...
Technical Part
• Blockchain analytics tool
• find details about addresses, transactions
• merge addresses into entities
• s...
55
Technical Part
• (Dark) Web Crawler
• find bitcoin addresses in the (dark) web
• extract additional contextual information
...
Alternative Applications for
Bitcoin (A2Bit)
• FFG Bridge Early Stage
• Reuse concept of block chains and proof-of-* for a...
Other recent
developments
58
MIT Digital Currency Initiative
• Goal: create a safe, stable and secure digital currency
• Conduct research (security, st...
Digital currencies:
response to the call for information
Source: https://www.gov.uk/government/uploads/system/uploads/atta...
–Bonneau et al. (2015)
“Bitcoin is a rare case where practice seems to
be ahead of theory. We consider that a
tremendous o...
References
• Nakamoto, S. (2011). Bitcoin: A Peer-to-Peer
Electronic Cash System. Available at: https://
bitcoin.org/bitco...
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Bitcoin - Introduction, Technical Aspects and Ongoing Developments

  1. 1. BITCOIN Introduction, Technical Aspects,
 and Ongoing Developments Bernhard Haslhofer, AIT Aljosha Judmayer, SBA Research Austrian Financial Market Authority (FMA) 2015-04-30
  2. 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. 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. 4. Agenda • Introduction to Bitcoin • Technical Aspects • Ongoing developments • Questions and Discussion 4
  5. 5. Agenda • Introduction to Bitcoin • Technical Aspects • Ongoing developments • Questions and Discussion 5
  6. 6. What are Bitcoins? 6
  7. 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. 8. • Difference to other currency systems: • no trusted parties • no pre-assumed identities • Also known as “cryptocurrency” A virtual currency 8
  9. 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. 10. A community effort • … driven by • enthusiasts • entrepreneurs • developers 10
  11. 11. Who invented Bitcoin? 11
  12. 12. David Chaum (1983) • Conceived eCash • Anonymous electronic money Source: http://de.wikipedia.org/wiki/David_Chaum 12
  13. 13. Wei Dei (1998) • Describes idea of distributed crypto-currency • B-money: all transactions are publicly (anonymously) broadcasted.
  14. 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. 15. How do I pay with Bitcoins? 15
  16. 16. Via web applications 16
  17. 17. Via mobile devices Source: https://www.bitkassa.nl/ Business Owner Customer Source: http://www.wired.com/2014/07/blockchain-back/17
  18. 18. Using a “fat” client 18
  19. 19. Using plastic cards 19
  20. 20. Where can I pay with Bitcoins? 20
  21. 21. 21
  22. 22. 22
  23. 23. How do I acquire Bitcoins? 23
  24. 24. Earn bitcoins • By completing tasks on Websites (e.g., CoinWorker, BitVisitor) • By receiving salaries (e.g., Internet Archive) • By receiving donations 24
  25. 25. Buy Bitcoins via Exchange 25
  26. 26. Buy Bitcoins via Exchange
  27. 27. EUR EUR EUR XBT XBT 27
  28. 28. Other Exchanges
  29. 29. Buy Bitcoins via Voucher Source: https://www.bitcoinbon.at 29
  30. 30. Buy Bitcoins at ATM Source: https://coinfinity.co/bitcoin-kaufen/ 30
  31. 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
  32. 32. Mine Bitcoins Source: http://99bitcoins.com/20-insane-bitcoin-mining-rigs/#prettyPhoto
  33. 33. How does the overall Bitcoin market look like? 33
  34. 34. 34
  35. 35. 35
  36. 36. 36
  37. 37. 37
  38. 38. 38
  39. 39. What are Altcoins? 39
  40. 40. 40
  41. 41. Source: http://cryptocoincharts.info/coins/graphicalComparison 41
  42. 42. DEMO 42
  43. 43. The Big Picture P2P Network Broadcast Transaction Blockchain 43
  44. 44. The Big Picture P2P Network Blockchain Miners Collect pending Transactions 44
  45. 45. The Big Picture P2P Network Blockchain Miners Find a block 45
  46. 46. The Big Picture P2P Network Blockchain Miners Broadcast new block 46
  47. 47. P2P Network Synchronize Blocks Blockchain Receive Confirmations The Big Picture 47
  48. 48. P2P Network Synchronize Blocks Blockchain Receive Confirmations The Big Picture 48
  49. 49. Agenda • Introduction to Bitcoin • Technical Aspects • Ongoing developments • Questions and Discussion 49
  50. 50. Blockchain Transactions H ash Asymmetric
 Encryption Mining …. 50
  51. 51. Agenda • Introduction to Bitcoin • Technical Aspects • Ongoing developments • Questions and Discussion 51
  52. 52. BITCRIME • Bitcoin’s history also 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. 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. 54. Technical Part • Blockchain analytics 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
  55. 55. 55
  56. 56. Technical Part • (Dark) Web Crawler • find bitcoin addresses in the (dark) web • extract additional contextual information • integrate with Blockchain analytics tool 56
  57. 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
  58. 58. Other recent developments 58
  59. 59. MIT Digital Currency Initiative • 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. 60. Digital currencies: response to the 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. 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. 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

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