The American corporate graveyard is littered with prior darlings of Wall Street and pillars of the New York Stock Exchange, such as Kodak and Polaroid (both photography pioneers). More recently, other businesses and entire industries that were once household names have similarly experienced plummeting demand: pay telephone manufacturers; travel agencies; wrist watch manufacturers; print news media such as newspapers and magazines; and many traditional brick and mortar retailers (replaced by Amazon). The common characteristic is that all of these businesses have become completely or substantially obsolete due to digitized technology.Now, the equivalent disruptive technological revolution in financial services is underway. During recent years, rapid technological advances have resulted in a sea change to the way most of the world conducts and regulates financial services. While the implications are vast and the ultimate ramifications are largely unknown at this time, this article: examines the brief but important history of virtual currencies in general; considers the impact of Bitcoin in particular; and explores the promise for widespread application of Bitcoin’s underlying blockchain technological platform to the financial services industry.This brief article proceeds in five parts, as follows. First, there is a discussion of disruptive changes taking place in financial services. Second, the article briefly explores virtual currencies and the genesis of Bitcoin. Third, there is an explanation of blockchain technology - what it is and why it is important. Fourth, the article discusses recent developments that provide a validation of blockchain application to financial services markets. Finally, there is a brief review of regulatory challenges to the adoption of this new technology. A purpose of this article is to enhance the reader’s understanding of the promises and challenges faced by financial service providers due to these rapid advances in technology.
Bitcoin is without a doubt the most successful cryptocurrency in circulation today, making it an extremely valuable target for attackers. Indeed, many studies have highlighted ways to compromise one or several Bitcoin nodes. In this paper, we take a different perspective and study the effect of large-scale network-level attacks such as the ones that may be launched by Autonomous Systems (ASes).
We show that attacks that are commonly believed to be hard, such as isolating 50% of the mining power, are actually within the reach of anyone with access to a BGP-enabled network and hijacking less than 900 prefixes. Once on path, AS-level adversaries can then partition the Bitcoin network or delay block propagation significantly. The key factors that enable these attacks are the extreme centralization of Bitcoin, both from a routing and a mining perspective, along with the fact that Bitcoin messages are sent unencrypted, without integrity guarantees.
We demonstrate the feasibility of large-scale attacks in practice against the deployed Bitcoin software and quantify their disruptive network-wide impact. The potential damage to Bitcoin is severe. By isolating a part of the network or delaying the propagation of blocks, network-level attackers can cause a significant amount of mining power to be wasted, leading to revenue losses and enabling a wide range of attacks such as double spending. We provide several suggestions on approaches to mitigate such attacks employing both short-term and long-term measures.
As the most successful cryptocurrency to date, Bitcoin constitutes a target of choice for attackers. While many attack vectors have already been uncovered, one important vector has been left out though: attacking the currency via the Internet routing infrastructure itself. Indeed, by manipulating routing advertisements (BGP hijacks) or by naturally intercepting traffic, Autonomous Systems (ASes) can intercept and manipulate a large fraction of Bitcoin traffic. This paper presents the first taxonomy of routing attacks and their impact on Bitcoin, considering both small-scale attacks, targeting individual nodes, and large-scale attacks, targeting the network as a whole. While challenging, we show that two key properties make routing attacks practical: (i) the efficiency of routing manipulation; and (ii) the significant centralization of Bitcoin in terms of mining and routing. Specifically, we find that any network attacker can hijack few (<100) BGP prefixes to isolate ~50% of the mining power---even when considering that mining pools are heavily multi-homed. We also show that on-path network attackers can considerably slow down block propagation by interfering with few key Bitcoin messages. We demonstrate the feasibility of each attack against the deployed Bitcoin software. We also quantify their effectiveness on the current Bitcoin topology using data collected from a Bitcoin supernode combined with BGP routing data. The potential damage to Bitcoin is worrying. By isolating parts of the network or delaying block propagation, attackers can cause a significant amount of mining power to be wasted, leading to revenue losses and enabling a wide range of exploits such as double spending. To prevent such effects in practice, we provide both short and long-term countermeasures, some of which can be deployed immediately.
Address clustering tries to construct the one-to-many mapping from entities to addresses in the Bitcoin system. Simple heuristics based on the micro-structure of transactions have proved very effective in practice. In this paper we describe the primary reasons behind this effectiveness: address reuse, avoidable merging, super-clusters with high centrality, and the incremental growth of address clusters. We quantify their impact during Bitcoin's first seven years of existence.
Most popular blockchain solutions, like Bitcoin, rely on proof-of-work, guaranteeing that the output of the consensus is agreed upon with high probability. However, this probability depends on the delivery of messages and that the computational power of the system is sufficiently scattered among pools of nodes in the network so that no pool can mine more blocks faster than the crowd. New approaches, like Ethereum, generalise the proof-of-work approach by letting individuals deploy their own private blockchain with high transaction throughput. As companies are starting to deploy private chains, it has become crucial to better understand the guarantees blockchains offer in such a small and controlled environment. In this paper, we present the \emph{Blockchain Anomaly}, an execution that we experienced when building our private chain at NICTA/Data61. Even though this anomaly has never been acknowledged before, it may translate into dramatic consequences for the user of blockchains. Named after the infamous Paxos anomaly, this anomaly makes dependent transactions, like "Bob sends money to Carole after he received money from Alice" impossible. This anomaly relies on the fact that existing blockchains do not ensure consensus safety deterministically: there is no way for Bob to make sure that Alice actually sent him coins without Bob using an external mechanism, like converting these coins into a fiat currency that allows him to withdraw. We also explore smart contracts as a potential alternative to transactions in order to freeze coins, and show implementations of smart contract that can suffer from the Blockchain anomaly and others that may cope with it.
We examine a protocol $\pi_{\text{beacon}}$ that outputs unpredictable and publicly verifiable randomness, meaning that the output is unknown at the time that $\pi_{\text{beacon}}$ starts, yet everyone can verify that the output is close to uniform after $\pi_{\text{beacon}}$ terminates. We show that $\pi_{\text{beacon}}$ can be instantiated via Bitcoin under sensible assumptions; in particular we consider an adversary with an arbitrarily large initial budget who may not operate at a loss indefinitely. In case the adversary has an infinite budget, we provide an impossibility result that stems from the similarity between the Bitcoin model and Santha-Vazirani sources. We also give a hybrid protocol that combines trusted parties and a Bitcoin-based beacon.
Blockchain technology is disrupting society by enabling new kinds of disintermediated digital platforms. Furthermore, it is also providing efficiency gains on top of old existing structures by removing the need for actively intermediated data-synchronization and concurrency control. Due to this dual effect, blockchain technology has the potential to impact all sectors and layers of society, in a multitude of combined ways. While there is a lot of hype around the concept of blockchains, the phenomenon itself has remained ambiguous and misconceptions have emerged about the capabilities and the potential of blockchain technology. Drawing from ETLA’s participation in blockchain research in 2014–2016, this paper aims to provide a more comprehensive understanding on blockchain technology, its true possibilities, and its potential larger societal implications. It offers a holistic view of the key concepts and the basic principles, and the tools and the framework to understand the ongoing discussion, to critically evaluate different viewpoints, and to delve deeper in a constructed manner
Bitcoin was recently introduced as a peer-to-peer electronic currency in order to facilitate transactions outside the traditional financial system. The core of Bitcoin, the Blockchain, is the history of the transactions in the system maintained by all miners as a distributed shared register. New blocks in the Blockchain contain the last transactions in the system and are added by miners after a block mining process that consists in solving a resource consuming proof-of-work (cryptographic puzzle). The reward is a motivation for mining process but also could be an incentive for attacks such as selfish mining. In this paper we propose a solution for one of the major problems in Bitcoin : selfish mining or block-withholding attack. This attack is conducted by adversarial or selfish miners in order to either earn undue rewards or waste the computational power of honest miners. Contrary to recent solutions, our solution, ZeroBlock, prevents block-withholding using a technique free of timestamp that can be forged. Moreover, we show that our solution is compliant with nodes churn.
Abstract We formalize and construct black-box accumulation (BBA), a useful building block for numerous important user-centric protocols including loyalty systems, refund systems, and incentive systems (as, e.g., employed in participatory sensing and vehicle-to-grid scenarios). A core requirement all these systems share is a mechanism to let users collect and sum up values (call it incentives, bonus points, reputation points, etc.) issued by some other parties in a privacy-preserving way such that curious operators may not be able to link the different transactions of a user. At the same time, a group of malicious users may not be able to cheat the system by pretending to have collected a higher amount than what was actually issued to them. As a first contribution, we fully formalize the core functionality and properties of this important building block. Furthermore, we present a generic and non-interactive construction of a BBA system based on homomorphic commitments, digital signatures, and non-interactive zero-knowledge proofs of knowledge. For our construction, we formally prove security and privacy properties. Finally, we propose a concrete instantiation of our construction using Groth-Sahai commitments and proofs as well as the optimal structure-preserving signature scheme of Abe et al. and analyze its efficiency.
Irni Eliana Khairuddin, Corina Sas, Sarah Clinch, Nigel Davies
This paper presents an exploratory study focusing on user experience with Bitcoin technology. We describe interviews with 9 Bitcoin users and report findings related to users' motivations for buying and using bitcoins. Our initial findings capture three main motivations such as Bitcoin's predicted role in a monetary revolution, users' increased empowerment, and their perception of a real value of Bitcoin currency. We conclude with reflections on the value of these findings for HCI researchers.
Digital currencies represent a new method for exchange -- a payment method with no physical form, made real by the Internet. This new type of currency was created to ease online transactions and to provide greater convenience in making payments. However, a critical component of a monetary system is the people who use it. Acknowledging this, we present results of our interview study (N=20) with two groups of participants (users and non-users) about how they perceive the most popular digital currency, Bitcoin. Our results reveal: non-users mistakenly believe they are incapable of using Bitcoin, users are not well-versed in how the protocol functions, they have misconceptions about the privacy of transactions, and that Bitcoin satisfies properties of ideal payment systems as defined by our participants. Our results illustrate Bitcoin's tradeoffs, its uses, and barriers to entry.
In January 3, 2009, Satoshi Nakamoto gave rise to the "Bitcoin Block Chain" creating the first block of the chain hashing on his computers central processing unit (CPU). Since then, the hash calculations to mine Bitcoin have been getting more and more complex, and consequently the mining hardware evolved to adapt to this increasing difficulty. Three generations of mining hardware have followed the CPU's generation. They are GPU's, FPGA's and ASIC's generations. This work presents an agent based artificial market model of the Bitcoin mining process and of the Bitcoin transactions. The goal of this work is to model the economy of the mining process, starting from GPU's generation, the first with economic significance. The model reproduces some "stylized facts" found in real time price series and some core aspects of the mining business. In particular, the computational experiments performed are able to reproduce the unit root property, the fat tail phenomenon and the volatility clustering of Bitcoin price series. In addition, under proper assumptions, they are able to reproduce the price peak at the end of November 2013, its next fall in April 2014, the generation of Bitcoins, the hashing capability, the power consumption, and the mining hardware and electrical energy expenses of the Bitcoin network.
The Internet of Things and Services (IoTS) has encouraged the development of service provisioning systems in respect to Smart City topics. Most of them are operated as heterogeneous systems which limits end customers’ access and contradicts with IoTS principles. In this paper, we discuss and develop a reference model of an interconnected service marketplace ecosystem. The prototypical implementation incorporates findings from an empirical study and lessons learned from research projects. The elaborated ecosystem enables service request roaming between different parties across system boundaries. The paper presents a feasible centralized architecture, introduces involved parties and parts of a developed message protocol. Why a contracting mechanism is indispensable for request roaming is also outlined. The model’s feasibility is demonstrated by means of a current electric mobility use case: providing access to foreign charging infrastructure without multiple registrations. This work contributes to simplify the data exchange between service platforms to improve Smart City solutions and to support travelers with intelligent mobility applications.
Ryan Michael Burke, Brett Reardon, Stephen Happel, William J. Boyes
Evolved by way of an anonymous programmer, Bitcoin is a global cryptocurrency and a machine for virtual currency.The transactions take location immediately among the users minus any intermediaries.Bitcoin is an awesome mode of exchange whilst in comparison to traditional banks.Those transactions are verified through network nodes and recorded in a public dispensed ledger called blockchain.The price of bitcoins are volatile i.e. they could unpredictably boom or lower over a quick time period.They are taken into consideration excessivedanger assets whose transactions can simplest be refunded and not reversed.The bitcoin came into life in January 2009, with Satoshi Nakamoto mined the primary block of bitcoins ever.Given that then, some of supporters engaged in transactions and acquired bitcoins.International locations round the world started out accepting bitcoin as a legitimate mode of currency like the United States.However, some countries like Djibouti haven't legalized yet the usage of this foreign money due to some of reasons.The targets of this paper are to understand the awareness about the existence of bitcoins, to evaluate the perception of bitcoin as the future currency and to research the possibility of legalization of bitcoins in Djibouti.
Central banking in an age of digital currencies is a fast-developing topic in monetary economics. Algorithmic digital currencies such as bitcoin appear to be viable competitors to central bank fiat currency, and their presence in the marketplace may pressure central banks to pursue tighter monetary policy. More interestingly, the blockchain technology behind digital currencies has the potential to improve central banks' payment and clearing operations, and possibly to serve as a platform from which central banks might launch their own digital currencies. A sovereign digital currency could have profound implications for the banking system, narrowing the relationship between citizens and central banks and removing the need for the public to keep deposits in fractional reserve commercial banks. Debates over the wisdom of these policies have led to a revival of interest in classical monetary economics.
Bitcoin was recently introduced as a peer-to-peer electronic currency in order to facilitate transactions outside the traditional financial system. The core of Bitcoin, the Blockchain, is the history of the transactions in the system maintained by all nodes as a distributed shared register. New blocks in the Blockchain contain the last transactions in the system and are added by nodes (miners) after a block mining process that consists in solving a resource consuming proof-of-work (cryptographic puzzle). The reward is a motivation for mining process but also could be an incentive for attacks such as selfish mining. In this paper we propose a solution for one of the major problems in Bitcoin : selfish mining or block withholding attack. This attack is conducted by adversarial or selfish nodes in order to either earn undue rewards or waste the computational power of honest nodes. Contrary to recent solutions, our solution, ZeroBlock, prevents block withholding using a technique free of forgeable timestamps. Moreover, we show that our solution is also compliant with nodes churn.
Bitcoin is a virtual money and a new payment system which is not regulated by a central authority.Bitcoin became popular quickly and gained the ability of affecting the real economy.Being used extensively and seen as an investment tool, Bitcoin created its own market, users and investors.This study aims to shed light on Bitcoin market.To understand what Bitcoin is, the history of Bitcoin was summarized firstly and the Bitcoin system and how the protocol works was explained.Then Efficiency, Liquidity and Volatility of the Bitcoin Markets were analyzed.We concluded that the pricing of Bitcoin is too complicated; and the Bitcoin market is still vulnerable to many risks and speculation.
Cryptocurrencies that are based on Proof-of-Work (PoW) often rely on special purpose hardware to perform so-called mining operations that secure the system, with miners receiving freshly minted tokens as a reward for their work. A notable example of such a cryptocurrency is Bitcoin, which is primarily mined using application specific integrated circuit (ASIC) based machines. Due to the supposed profitability of cryptocurrency mining, such hardware has been in great demand in recent years, in-spite of high associated costs like electricity. In this work, we show that because mining rewards are given in the mined cryptocurrency, while expenses are usually paid in some fiat currency such as the United States Dollar (USD), cryptocurrency mining is in fact a bundle of financial options. When exercised, each option converts electricity to tokens. We provide a method of pricing mining hardware based on this insight, and prove that any other price creates arbitrage. Our method shows that contrary to the popular belief that mining hardware is worth less if the cryptocurrency is highly volatile, the opposite effect is true: volatility increases value. Thus, if a coin's volatility decreases, some miners may leave, affecting security. We compare the prices produced by our method to prices obtained from popular tools currently used by miners and show that the latter only consider the expected returns from mining, while neglecting to account for the inherent risk in mining, which is due to the high exchange-rate volatility of cryptocurrencies. Finally, we show that the returns made from mining can be imitated by trading in bonds and coins, and create such imitating investment portfolios. Historically, realized revenues of these portfolios have outperformed mining, showing that indeed hardware is mispriced.
Current regulation of decentralized ledger technology leaves industry actors in confusion, facing high risk, and confronting significant disincentives to innovate. This Article argues that an endogenous regulatory approach offers an avenue for alleviating these obstacles while still providing sufficient tools for government oversight. In particular, this Article proposes regulation that is endogenous at two levels: first, in that it is created through an iterative, cooperative process involving both regulators and industry actors, and second, that it is implemented as regulation-through-code, that is, regulation written into the code itself. In so doing, this Article also investigates whether successful implementation of such an approach could disrupt the dichotomous choice between ex ante and ex post regulation in the financial and other spheres. This Article first examines the current regulatory landscape facing decentralized ledger technologies, including payments applications such as bitcoin. This Article then discusses ways in which these regulatory approaches have failed to keep pace with the technology and, as a result, are impeding innovation in a variety of sectors. This Article next outlines criteria for improving the regulatory landscape applicable to decentralized ledger technologies, evaluating alternative models of regulation in light of the criteria, and concluding that most such proposals continue to leave a regulatory lacunae. Drawing on theories of endogenous economic regulation, endogenous development, comparative law’s functional method and financial regulation, this Article attempts to fill the gap by proposing that decentralized technologies, including decentralized payment systems such as bitcoin, are robust enough to support a theory of endogenous, technology-assisted regulation.
<p style='text-indent:20px;'>In Bitcoin system, transactions are prioritized according to transaction fees. Transactions without fees are given low priority and likely to wait for confirmation. Because the demand of micro payment in Bitcoin is expected to increase due to low remittance cost, it is important to quantitatively investigate how transactions with small fees of Bitcoin affect the transaction-confirmation time. In this paper, we analyze the transaction-confirmation time by queueing theory. We model the transaction-confirmation process of Bitcoin as a priority queueing system with batch service, deriving the mean transaction-confirmation time. Numerical examples show how the demand of transactions with low fees affects the transaction-confirmation time. We also consider the effect of the maximum block size on the transaction-confirmation time.
In Bitcoin system, transactions are prioritized according to attributes such as the remittance amount and transaction fees, and transactions with low priority are likely to wait for confirmation. Because the demand of micro payment in Bitcoin is expected to increase due to low remittance cost, it is important to quantitatively investigate how the priority mechanism of Bitcoin affects the transaction-confirmation time. In this paper, we analyze the transaction-confirmation time by queueing theory. We model the transaction priority mechanism of Bitcoin as a priority queueing system with batch service, deriving the mean transaction-confirmation time. Numerical examples show how the demand of transactions of low remittance amount affects the transaction-confirmation time. We also consider the effect of the maximum block size on the transaction-confirmation time.
Alexia Maddox, Supriya Singh, Heather A. Horst, Greg Adamson
Cryptocurrencies such as Bitcoin are a recent socio-technical innovation that seeks to disrupt the existing monetary system. Through mundane uses of this new digital cash, they provide a social critique of the centralized infrastructures of the banking industry. This paper outlines an ethnographic research agenda for this new digital frontier of social practice and exchange and the human affordances of engaging with cryptocurrencies such as Bitcoin. Firstly we argue that the use of Bitcoin can be seen as acts of social resistance and a form of social mobility that harnesses the emergent, serendipitous and dynamic properties of digital community. We then outline the disruptive nature of borderless, affordable and instantaneous international transfers within social practice. Finally, we identify the possible permutations of trust that may be found in the technical affordances of Bitcoin and how these relate to user (pseudo)anonymity, cybertheft, cyberfraud, and consumer protection. Bringing together these three key areas we highlight the importance of understanding the ordinary (rather than extra-ordinary) uses of cryptocurrencies such as Bitcoin. We contend that focusing upon users interactions with Bitcoin as a system and culture will shed light upon mundane acts of socio-technical disruption, acts that critique and provide alternative financial exchange practices to the economic and regulatory financial infrastructures of the centralised banking industry.