Introduction to Bitcoin

1. BITCOIN
Introduction, Technical Aspects,
and Ongoing Developments
Bernhard Haslhofer, AIT
Aljosha Judmayer, SBA Research
Austrian Financial Market Authority (FMA)
2015-04-30

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
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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
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4. Agenda
• Introduction to Bitcoin
• Technical Aspects
• Ongoing developments
• Questions and Discussion
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5. Agenda
• Introduction to Bitcoin
• Technical Aspects
• Ongoing developments
• Questions and Discussion
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6. What are Bitcoins?
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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, …)
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8. • Difference to other currency systems:
• no trusted parties
• no pre-assumed identities
• Also known as “cryptocurrency”
A virtual currency
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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)
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10. A community effort
• … driven by
• enthusiasts
• entrepreneurs
• developers
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11. Who invented Bitcoin?
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12. David Chaum (1983)
• Conceived eCash
• Anonymous electronic money
Source: http://de.wikipedia.org/wiki/David_Chaum
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13. Wei Dei (1998)
• Describes idea of distributed crypto-currency
• B-money: all transactions are publicly
(anonymously) broadcasted.

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
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15. How do I pay with
Bitcoins?
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16. Via web applications
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17. Via mobile devices
Source: https://www.bitkassa.nl/
Business Owner Customer
Source: http://www.wired.com/2014/07/blockchain-back/17

18. Using a “fat” client
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19. Using plastic cards
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20. Where can I pay with
Bitcoins?
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21. 21

22. 22

23. How do I acquire
Bitcoins?
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24. Earn bitcoins
• By completing tasks on Websites (e.g.,
CoinWorker, BitVisitor)
• By receiving salaries (e.g., Internet Archive)
• By receiving donations
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25. Buy Bitcoins via Exchange
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26. Buy Bitcoins via Exchange

27. EUR
EUR
EUR
XBT
XBT
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28. Other Exchanges

29. Buy Bitcoins via Voucher
Source: https://www.bitcoinbon.at
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30. Buy Bitcoins at ATM
Source: https://coinfinity.co/bitcoin-kaufen/
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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
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32. Mine Bitcoins
Source: http://99bitcoins.com/20-insane-bitcoin-mining-rigs/#prettyPhoto

33. How does the overall
Bitcoin market look like?
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34. 34

35. 35

36. 36

37. 37

38. 38

39. What are Altcoins?
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40. 40

41. Source: http://cryptocoincharts.info/coins/graphicalComparison 41

42. DEMO
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43. The Big Picture
P2P Network
Broadcast
Transaction
Blockchain 43

44. The Big Picture
P2P Network
Blockchain
Miners
Collect pending
Transactions
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45. The Big Picture
P2P Network
Blockchain
Miners
Find a block
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46. The Big Picture
P2P Network
Blockchain
Miners
Broadcast new
block
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47. P2P Network
Synchronize
Blocks
Blockchain
Receive
Confirmations
The Big Picture
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48. P2P Network
Synchronize
Blocks
Blockchain
Receive
Confirmations
The Big Picture
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49. Agenda
• Introduction to Bitcoin
• Technical Aspects
• Ongoing developments
• Questions and Discussion
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50. Blockchain
Transactions
H
ash
Asymmetric
Encryption
Mining
….
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51. Agenda
• Introduction to Bitcoin
• Technical Aspects
• Ongoing developments
• Questions and Discussion
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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)
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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/
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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
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55. 55

56. Technical Part
• (Dark) Web Crawler
• find bitcoin addresses in the (dark) web
• extract additional contextual information
• integrate with Blockchain analytics tool
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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, ...
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58. Other recent
developments
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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. 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. –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.”
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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
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