On February 2014, $650.000.000 worth of Bitcoins disappeared. Currently it is unclear whether hackers or MtGox, the largest Bitcoin exchange, are to be blamed. In either case, the anonymous and unregulated nature of the Bitcoin system makes it practically impossible for innocent victims to get their money back. We have investigated the technical possibilities, solutions and implications of introducing a regulatory framework based on redlisting Bitcoin accounts. Despite numerous proposals, the Bitcoin community has voiced a strong opinion against any form of regulation. However, most of the discussions were based on speculations rather than facts. We strive to contribute a scientific foundation to these discussions and illuminate the path to crypto-justice.
The financial crisis has led to a widespread loss of trust in financial intermediaries of all kinds, perhaps helping to open the way towards the general acceptance of alternative technologies. This paper briefly summarises the crypto-currency phenomenon, separating the âcurrencyâ issues from the potential technology benefits. With respect to crypto currencies, the paper argues that these canât undermine the ability of central banks to conduct monetary policy. They do, however, raise consumer protection and bank secrecy issues. The valuation of Bitcoins and price volatility issues are discussed, as well as electronic theft, contract failures, etc., all of which could result in large losses to users and hence ultimate costs to the taxpayer (e.g. the failure to provide adequate private pensions resulting in increased reliance on public pensions). The anonymity features of the crypto-currencies also facilitate tax evasion and money laundering, both of which are major public policy concerns. The technology associated with crypto-currencies, on the other hand, could ultimately shift the entire basis of trust involved in any financial transaction. It is an innovation that creates the ability to carry out transactions without the need for a trusted third party; i.e. a move towards trust-less transactions. This mechanism could work to eliminate the role of many intermediaries, thereby reducing transactions costs by introducing much needed competition to incumbent firms. The generic issues that policy makers need to examine are summarised.
The Bitcoin has emerged as a fascinating phenomenon in the Financial markets. Without any central authority issuing the currency, the Bitcoin has been associated with controversy ever since its popularity, accompanied by increased public interest, reached high levels. Here, we contribute to the discussion by examining the potential drivers of Bitcoin prices, ranging from fundamental sources to speculative and technical ones, and we further study the potential influence of the Chinese market. The evolution of relationships is examined in both time and frequency domains utilizing the continuous wavelets framework, so that we not only comment on the development of the interconnections in time but also distinguish between short-term and long-term connections. We find that the Bitcoin forms a unique asset possessing properties of both a standard financial asset and a speculative one.
With the vast increase in smartphones, there have been an increasing number of opportunities growing in the app industry. One in particular is the way we deal with money. There are huge overheads in the current payment systems around the world particularly in the United States, many of which include large transaction fees. Many new businesses have grown to solve these inefficiencies and create a new platform that provides a new user experience, security, and convenience among many other things. However, many of these platforms are still centralized, making them more susceptible to attacks. This thesis goes over the various methods of payments, starting from their origins and discusses their flaws and ways they are being improved. This study explains where payment platforms are going and how they line up against other platforms in terms of security and usability. We look at the origins of credit cards and why the US is lagging behind other countries in credit card security. Digital wallets like PayPal, Venmo, Square, etc. have done a remarkable job, but still have room for improvement in terms of security and usage. I try to solve these problems with the mobile application AnyCoin by bringing one platform that houses different types of digital wallets. The goal of this application was to grow a large user base and collect data off the transaction for future analysis and advertising. This study goes through an in depth analysis on the application from the iv perspective of merchants and consumers to understand what users are looking for in digital wallets. Decentralized platforms and crypto-currencies like Bitcoin have also created different ways to send money by creating a trustless system that does not depend on any central authority. I discuss what Bitcoin is and exactly how it works and the flaws in the current system. Mining is the process that puts Bitcoin into circulation and secures the network. However, as more customized hardware is released, Bitcoin will fall subject to becoming more centralized, and unfortunately become heavy regulated if it is to be used as a currency. Ethereum is a new technology that takes the concepts of Bitcoin and creates a platform for a developer to create a decentralized application. I create a few contracts that show how we can create a decentralized version of PayPal that works using other crypto- currencies. Ethereum is still in its alpha stage and has yet to
This article presents one of the new elements of virtual reality, which is the Bitcoin cryptocurrency. This thesis focuses on the condition and perspectives on development of the trading function of this instrument. The authors discuss the legal aspects of functioning of the Bitcoin, conduct a SWOT analysis of this cryptocurrency as a medium of exchange, and examin the scale of use of Bitcoin in transaction purposes. As of March 1, 2014 the trading system gradually develops and the strengths of this cryptographic currency outweigh its weaknesses, but the future of Bitcoin as a medium of exchange is difficult to determine.
Alex Biryukov, Dmitry Khovratovich, Ivan Pustogarov
Bitcoin is a digital currency which relies on a distributed set of miners to mint coins and on a peer-to-peer network to broadcast transactions. The identities of Bitcoin users are hidden behind pseudonyms (public keys) which are recommended to be changed frequently in order to increase transaction unlinkability. We present an efficient method to deanonymize Bitcoin users, which allows to link user pseudonyms to the IP addresses where the transactions are generated. Our techniques work for the most common and the most challenging scenario when users are behind NATs or firewalls of their ISPs. They allow to link transactions of a user behind a NAT and to distinguish connections and transactions of different users behind the same NAT. We also show that a natural countermeasure of using Tor or other anonymity services can be cut-off by abusing anti-DoS countermeasures of the bitcoin network. Our attacks require only a few machines and have been experimentally verified. We propose several countermeasures to mitigate these new attacks.
Open access
4 source records
Blockchain Technology Applications and Security
Internet Traffic Analysis and Secure E-voting
Advanced Steganography and Watermarking Techniques
Cryptocurrencies such as bitcoin are often seen as a threat by governmental and financial institutions worldwide. Regulation could help minimise the risks involved. The author explores some legal and self-regulatory precedents from which we can learn.
I denne utredningen Ăžnsker vi Ă„ belyse det Ăžkonomisk innovative fenomenet bitcoin. MĂ„let med oppgaven er Ă„ fĂ„ klarhet i hva bitcoin er, og med grunnlag i dette undersĂžke om det er en boble. I fĂžrste del av utredningen presenterer vi det tekniske som ligger bak og ser pĂ„ hvordan det fungerer i det Ăžkonomiske markedet. Med bakgrunn i fremlagte teorier om valuta, rĂ„vare, betalingssystemer og svindler, analyserer vi hvilken definisjon bitcoin passer best innunder. Analysen viser oss at bitcoin ser ut til Ă„ hovedsakelig fungere som spekuleringsobjekt, men at det i fremtiden kan vĂŠre som betalingssystem. Dette begrunnes i lave transaksjonskostnader, noe som muliggjĂžr mikrotransaksjoner.\nI den andre delen av utredningen forsĂžker vi Ă„ besvare hovedproblemstillingen vĂ„r, hvorvidt bitcoin er en boble. Vi presenterer relevant bobleteori, herunder teorier om rasjonelle og irrasjonelle bobler. Volatilitetsberegninger viser oss at bitcoin har en daglig historisk volatilitet i tidsrommet 1.januar 2012 â 26.mars 2014 pĂ„ 8,5%. Vi har videre beregnet korrelasjonen mellom bitcoin sin prisutvikling og antall sĂžk i Google til Ă„ vĂŠre 0,96. Beregningene er benyttet til Ă„ analysere bitcoin opp mot bobleteori. Analysen viser oss tendenser til at det investeres i bitcoin i hĂ„p om en prisĂžkning i morgen, og at prisen samsvarer med publisiteten. Dette er klare indikasjoner pĂ„ at markedsprisen ikke reflekterer aktivumets fundamentale faktorer. Basert pĂ„ analysen fremlegger vi ogsĂ„ vĂ„re egne beregninger pĂ„ minste fundamentale verdi til bitcoin, en verdi pĂ„ $252,74.\nVĂ„re analyser og funn sett opp mot relevant bobleteori tyder pĂ„ at bitcoin er en boble. Fundamental verdi er ikke gjenspeilet i prisen, man kjĂžper i hĂ„p om gevinst i morgen og prisen korrelerer sterkt med publisiteten.\nĂkonometrisk testing er gjennomfĂžrt i SPSS, mens Ăžvrig databehandling er gjennomfĂžrt i Excel.
A hard-fork reconfiguration of the peer to peer Bitcoin network is described that substitutes tamper-evident logs and proof-of-stake consensus for proof-of-work consensus. The block creation rewards and transaction fees are reallocated to establish and staff a secure financial data network capable of handling the world's transactions with subsecond response time. The new system pays dividends to stake-offering bitcoin holders. In contrast to Satoshi Nakamoto's mesh network consisting of competing peers, this system uses an enterprise class network that is efficient, robust, and scalable, consisting of cooperating peers. The network backbone nodes host trustless nomadic agents. Thousands of distributed full nodes are paid to replicate a singleton blockchain built upon every 10 minutes by a nomadic mint agent whose actions are verified by its peers. This arrangement enables immediate acknowledgment to an issuing node that its transaction has been accepted. Less effort means that subsidized transaction costs will be lower. Network reconfiguration enables the processing of numerous microtransactions. Stake-weighted distributed consensus is achieved when necessary with less than one-half arbitrarily faulty nodes. Important invariants of the Satoshi Social Contract between core developers and users are maintained: The reward schedule, the blockchain format, the fixed number of bitcoins, and the decentralized, trustless protocol are untouched. The system remains a global distributed database, with additions to the database by consent of the majority, based on a set of transparent rules they follow.
Pavel Ciaian, Miroslava RajÄĂĄniovĂĄ, dâArtis Kancs
This is the first article that studies BitCoin price formation by considering both the traditional determinants of currency price, e.g., market forces of supply and demand, and digital currencies specific factors, e.g., BitCoin attractiveness for investors and users. The conceptual framework is based on the Barro (1979) model, from which we derive testable hypotheses. Using daily data for five years (2009â2015) and applying time-series analytical mechanisms, we find that market forces and BitCoin attractiveness for investors and users have a significant impact on BitCoin price but with variation over time. Our estimates do not support previous findings that macro-financial developments are driving BitCoin price in the long run.
In this paper we revisit some major orthodoxies which lie at the heart of the bitcoin crypto currency and its numerous clones. In particular we look at The Longest Chain Rule, the monetary supply policies and the exact mechanisms which implement them. We claim that these built-in properties are not as brilliant as they are sometimes claimed. A closer examination reveals that they are closer to being... engineering mistakes which other crypto currencies have copied rather blindly. More precisely we show that the capacity of current crypto currencies to resist double spending attacks is poor and most current crypto currencies are highly vulnerable. Satoshi did not implement a timestamp for bitcoin transactions and the bitcoin software does not attempt to monitor double spending events. As a result major attacks involving hundreds of millions of dollars can occur and would not even be recorded. Hundreds of millions have been invested to pay for ASIC hashing infrastructure yet insufficient attention was paid to network neutrality and to insure that the protection layer it promises is effective and cannot be abused. In this paper we develop a theory of Programmed Self-Destruction of crypto currencies. We observe that most crypto currencies have mandated abrupt and sudden transitions. These affect their hash rate and therefore their protection against double spending attacks which we do not limit the to the notion of 51% attacks which is highly misleading. In addition we show that smaller bitcoin competitors are substantially more vulnerable. In addition to small hash rate, many bitcoin competitors mandate incredibly important adjustments in miner reward. We exhibit examples of 'alt-coins' which validate our theory and for which the process of programmed decline and rapid self-destruction has clearly already started.
Andrew Miller, Ari Juels, Elaine Shi, Bryan Parno · 5 authors
Bit coin is widely regarded as the first broadly successful e-cash system. An oft-cited concern, though, is that mining Bit coins wastes computational resources. Indeed, Bit coin's underlying mining mechanism, which we call a scratch-off puzzle (SOP), involves continuously attempting to solve computational puzzles that have no intrinsic utility. We propose a modification to Bit coin that repurposes its mining resources to achieve a more broadly useful goal: distributed storage of archival data. We call our new scheme Perm coin. Unlike Bit coin and its proposed alternatives, Perm coin requires clients to invest not just computational resources, but also storage. Our scheme involves an alternative scratch-off puzzle for Bit coin based on Proofs-of-Retrievability (PORs). Successfully minting money with this SOP requires local, random access to a copy of a file. Given the competition among mining clients in Bit coin, this modified SOP gives rise to highly decentralized file storage, thus reducing the overall waste of Bit coin. Using a model of rational economic agents we show that our modified SOP preserves the essential properties of the original Bit coin puzzle. We also provide parameterizations and calculations based on realistic hardware constraints to demonstrate the practicality of Perm coin as a whole.
We give an explicit definition of decentralization and show you that\ndecentralization is almost impossible for the current stage and Bitcoin is the\nfirst truly noncentralized currency in the currency history. We propose a new\nframework of noncentralized cryptocurrency system with an assumption of the\nexistence of a weak adversary for a bank alliance. It abandons the mining\nprocess and blockchain, and removes history transactions from data\nsynchronization. We propose a consensus algorithm named Converged Consensus for\na noncentralized cryptocurrency system.\n
With the increasing use of virtual currencies such as bitcoin, tax officials have started paying attention. Privacy and virtual identity specialist Niels Vandezande of the Interdisciplinary Centre for Law and ICT (ICRI) at the KU Leuven â University of Leuven explains the implications of the recent IRS ruling on Bitcoin in the US, arguing that it may undermine the core reasons such virtual currencies were created.
Bitcoins have emerged as a possible competitor to usual currencies, but other\ncrypto-currencies have likewise appeared as competitors to the Bitcoin\ncurrency. The expanding market of crypto-currencies now involves capital\nequivalent to $10^{10}$ US Dollars, providing academia with an unusual\nopportunity to study the emergence of value. Here we show that the Bitcoin\ncurrency in itself is not special, but may rather be understood as the\ncontemporary dominating crypto-currency that may well be replaced by other\ncurrencies. We suggest that perception of value in a social system is generated\nby a voter-like dynamics, where fashions form and disperse even in the case\nwhere information is only exchanged on a pairwise basis between agents.\n
This paper considers whether the stability of Bitcoin in the market as a method of payment using a dual currency money-search model. In the model, there is traditional money and Bitcoin. The two currencies are classified by the storage cost and the probability that sellers accept particular money for payments. Agents are randomly matched for transactions. To consider substitution effect between monies, we allow new entries every period. In the beginning of each period, new entrants come into the matching process with a unit of money of their choice. A certain number of sellers also come into the same process to maintain the population share of sellers at a constant level. With appropriately chosen parameters, the author finds that there can be stable and unstable equilibria of the share of bitcoiners. In this case, a stable equilibrium is a success (bitcoiners take a large share) while the other (unstable) is a failure (bitcoiners take a marginal share or vanish). However, if the inflation rate of traditional money decreases, the successful equilibrium disappears to start approaching the failure even if Bitcoin is currently widely accepted. Furthermore, welfare comparisons suggest that an increase in the share of bitcoiners has a negative effect; hence, the benefit from reductions in the transaction costs must compensate for the welfare erosion if Bitcoin is accepted as a new kind of payment system. If the author is to succeed, the Bitcoin community or the public authorities need to be prepared for protecting the system from several illicit activities.
The question "what is Bitcoin" allows for many answers depending on the objectives aimed at when providing such answers. The question addressed in this paper is to determine a top-level classification, or type, for Bitcoin. We will classify Bitcoin as a system of type money-like informational commodity (MLIC).
We calculate the probability of success of block-hiding mining strategies in Bitcoin-like networks. These strategies involve building a secret branch of the block-tree and publishing it opportunistically, aiming to replace the top of the main branch and rip the reward associated with the secretly mined blocks. We identify two types of block-hiding strategies and chart the parameter space where those are more beneficial than the standard mining strategy described in Nakamoto's paper. Our analysis suggests a generalization of the notion of the relative hashing power as a measure for a miner's influence on the network. Block-hiding strategies are beneficial only when this measure of influence exceeds a certain threshold.
Open access
2 source records
cs.CR
Advanced Steganography and Watermarking Techniques
In this short note we show that the Bitcoin network can allow remote parties to gamble with their bitcoins by tossing a fair or biased coin, with no need for a trusted party, and without the possibility of extortion by dishonest parties who try to abort. The superfluousness of having a trusted party implies that there is no house edge, as is the case with centralized services that are supposed to generate a profit.
Bitcoin is the world's first decentralized digital currency. Its main technical innovation is the use of a blockchain and hash-based proof of work to synchronize transactions and prevent double-spending the currency. While the qualitative nature of this system is well understood, there is widespread confusion about its quantitative aspects and how they relate to attack vectors and their countermeasures. In this paper we take a look at the stochastic processes underlying typical attacks and their resulting probabilities of success.