Advanced Computer Communications PROFESSOR:STUDENT: PROF. DR. ING. BRAD REMUS STEFAN FEILMEIER FACULTATEA DE INGINERIE HERRMANN OBERTH MASTER-PROGRAM „EMBEDDED SYSTEMS“

Bitcoin Open Source P2P money

General idea and targets  „peer-to-peer payment system“ ➔ „Internet money“  Decentralized ➔ no controlling central bank  Secure ➔ cryptography  Anonymous ➔ like cash  Fast ➔ compared to bank transfers  Cheap ➔ low transaction fees  Limited ➔ no inflation

It has a value ?  Like traditional currencies ➔ no intrinsic value ➔ only trust

It has a value ?  Like traditional currencies ➔ no intrinsic value ➔ only trust

It has a value ?  Like traditional currencies ➔ no intrinsic value ➔ only trust

Purpose of this presentation  Infrastructures and technologies for decentralized, cryptographic, anonymous, fast and cheap transactions with complete strangers

Decentralized structure

Decentralized Ledger copy and synchronize

Transaction Message: Alice ➔ Bob 5.0 BTC Alice -5.0 BTC Bob +5.0 BTC Alice -5.0 BTC Bob +5.0 BTC Alice -5.0 BTC Bob +5.0 BTC

Transaction signature Message: Alice ➔ Bob 5.0 BTC Signature create Private KeyPublic Key verify Mathematical „Trapdoor function“: -Computation in one direction is easy -Finding the inverse is difficult

Transaction Message: Alice ➔ Bob 5.0 BTC Signature Private Key Public Key Personal password

Transaction Message: Alice ➔ Bob 5.0 BTC Signature Private Key Public Key Recipient / Destination address

Transaction Message: Alice ➔ Bob 5.0 BTC Signature Private KeyPublic Key „proof, that I own the private key – without showing you my private key“ Different for every message Modification of message is not possible, because verification would fail

Decentralized Ledger

Decentralized Transaction Chain Alice: = 5.0 Alice: = 5.0

A real Transaction InputsOutputs Total Sum

A real Transaction Chain Total Sum Output 2 Output 1 Source: Everybody knows everything

My balance TransactionFromToAmount TXN#001PK#1PK#25.0 TXN#002PK#1PK#310.0 TXN#002PK#2PK#33.0 Sum over all unspent outputs, which I own the private key for If I loose my private key, the bitcoins are lost forever

Transaction order  Timestamp?  Strangers!  The Block Chain

The Block Chain

A new block

A new block: collision

Block puzzle

Block puzzle: SHA256 Prevous block ID Transaction IdsRandom guess SHA256 8FA839,A76,91C, d1ee2d ac1a40b64c00c5d28a7fbf297663f7c7fc5541c43d521a1 8FA839,A76,91C, e519b730f2c9aaf cd56a4847c34aa1056be85ab7a6e06a8c9c707 8FA839,A76,91C, … 8FA839,A76,91C,383??????? ac0710b125e489b0261f1d23694c6d3bf692c24c925d2a1

A new block was found ac0710b125e489b0261f1d23694c6d3bf692c24c925d2a1

Collision can still happen Rule : always switch to the longest chain

„End of chain insecurity“

Financial reward  „ mining “ ➔ receive bitcoins for solved blocks  Transaction fee ➔ small fee per transaction

Recap: Transaction chain and Block Chain

Bitcoin challenges  Difficult to exchange  Used for illegal activities  Solving blocks uses large amounts of energy  Time duration too long for certain applications

Questions?  Sources:  ImponderableThings (Scott Driscoll's Blog) „ How Bitcoin Works Under the Hood ” hood.html hood.html  Satoshi Nakamoto „ Bitcoin: A Peer-to-Peer Electronic Cash System ”  Bitcoin „Protocol specification“  Wikipedia „ Bitcoin “, „ Trapdoor Function “