A bitcoin network is a peer-to-peer network that is managed via a cryptographic protocol. Users use Bitcoin cryptocurrency wallet software and exchange bitcoins through digitally enabled messaging. Transactions are recorded in a distributed, replicated public database known as a blockchain, and consensus is reached on a Proof of Work protocol called mining. Bitcoin designer Satoshi Nakamoto claims that the design and coding of Bitcoin began in 2006. [2] The project was released in 2009 as open source software.



Bitcoin transfer diagram



Number of bitcoin transactions per month (logarithmic scale) [1]

Bitcoin network requires a minimal structure for sharing transactions. A specially decentralized network of volunteers is sufficient. Messages are broadcast on the basis of maximum effort. Nodes can be disconnected from the network at will, or reconnected. After reconnecting, one node verifies and downloads new blocks from other nodes to complete a local copy of the blockchain. [3] [4]

Transactions

A bitcoin can be expressed as a sequence of digitally signed transactions, beginning with the birth of the bitcoin as a block reward. The owner of the bitcoin transfers the bitcoin to the next owner through a digital signature in the bitcoin transaction system, similar to approving bank checks in general. A recipient can check every transaction made in the past to verify the chain of ownership. However, bitcoins are not convertible like ordinary check approvals, which eliminates the risk of chargeback fraud. [5]

Although it is possible to manage each bitcoin individually, it would be a very complicated process if any transaction required a separate transaction for each bitcoin. That is why a transaction can have multiple inputs and outputs, so that bitcoins can be separated and reunited. Ordinary transactions will either have a single input from a previous large transaction or a combination of several previous small transactions. And the output will be two - one to pay, the other to return the retail money (if needed) to the sender. The difference between the total amount of input and output of the transaction goes to the minors as the transaction fee. [3]

Mining



GPU based mining strategy, 2012



FPGA based Mining Board of Lansilt, 2013

Bitcoin uses "Proof of Work Networks" to create a distributed timestamp server as a peer-to-peer network. This work is often called bitcoin mining. In this case, the signature is not given, but the signature is found. This process is closely related to energy. More than 90 per cent of the total cost of operating the mine is spent on electricity. In China, a data center set up for bitcoin mining requires a maximum capacity of 135 MW.

The main invention of Satoshi Nakamoto was to create the need for a proof of work in order to give the necessary signatures for the blockchain. The mining process involves identifying a block, which, when hashed a couple of times with SHA-256, provides a smaller number than the given hardness target. Where the required average amount of work increases in proportion to the hardness target, a hash can always be verified by launching one round of dual SHA-256.

Evidence of valid work is found by increasing the value of any one-time number for the Bitcoin timestamp network. The value of the number is increased until the hash of the block is found to give the required number of forward zero bits. Once the hash process returns a valid result, the block cannot be changed until the task is performed again. Later when the blocks are chained to it, you have to work again to change each subsequent block.

With the largest chain, most of the consensus on Bitcoin is expressed and maximum effort is required to create this chain. If most of the power measurement is controlled by honest nodes, then the number of honest chains will also increase the fastest and it will surpass any competing chain. In order to change a block from the past, an attacker must redo the proof of work on that block and all subsequent blocks, and override the work of the honest node. The more blocks are added later, the less likely it is that a slow attacker will be able to keep up with it.

Inconvenience

Bitcoin mining is a competitive endeavor. A variety of hashing technologies used to mine bitcoin have been used to create a kind of "competition for the best weapons." Many gaming computers, common CPUs in FPGA and ASIC, use higher GPUs to reduce the benefits of less specialized technology. ASIC, which specializes in bitcoin, has now become the basic tool for bitcoin mining and has surpassed the GPU speed by more than 300 times. As bitcoin mining has become more difficult, computer hardware manufacturers are seeing an increase in sales of high-speed ASIC products.

The power of computers is often pooled to reduce the difference in income from minors. Each mining rig has to wait a long time to ensure transactions and payments are received. Each time a participating server solves a block, all minors participating in a pool are paid. This money is given based on the amount of work of each minor to find that block. Bitcoin data centers are usually scattered outside the public eye and around the world, and there is a tendency for clusters to be clustered around low-cost areas.

Energy consumption

In 2013, Mark Gimin calculated that the cost of electricity could be 40.9 megawatts (962 megawatt-hours a day). In 2014, according to Haas McCook, the cost was 60.6 MW (60.6 kW). In 2015, according to The Economist, even if all the miners use modern facilities, the combined power consumption could be 16.8 MW (1.48 terawatt-hours per year).

To reduce costs, bitcoin mines have been set up in places like Iceland where geothermal energy is cheap and cold polar air is available for free. Chinese bitcoin miners use hydropower in Tibet to reduce electricity costs.

Processing



Avalon ASIC based mining machine



ASICMINER ASIC-based USB mining device

Bitcoin Mining Overview:

New transactions are transmitted to all nodes.

Each minor node generates new transactions in one block.

Each minor node works to find a working proof code for its block.

When a node finds evidence of a work, it transmits the block to all nodes.

Acceptance of documents validates all transactions and is accepted only when all transactions are valid.

The nodes express their acceptability by including the hash of the approved block and starting work on the next block.

Mined bitcoin editing



The figure shows how Bitcoin transactions are verified

As is customary, the first transaction on the block is a special type that produces new bitcoins owned by the block owner. This is considered as an incentive for nodes to support the network. It also shows the way new bitcoins are circulated. Mining's prize money halves after every 210,000 blocks. It started with 50 bitcoins, dropped to 25 at the end of 2012 and reached 12.5 bitcoins in 2016. [6]

Security

The Bitcoin network has been considered for various potential attacks and its practical or theoretical use as a method of payment. The Bitcoin protocol has a number of features that can counteract unsolicited attacks such as unauthorized costs, double costs, bitcoin fraud and blockchain tampering. Users need to be careful about other attacks, such as the theft of private keys. [6] [6]

Unauthorized spending

Implementing public-private key cryptography can reduce unauthorized spending. For example, when Alice sends Bitcoin to Bob, Bob becomes the new owner of Bitcoin. If someone named Eve sees the transaction, she may want to spend the bitcoins Bob has received, but she will not be able to sign the transaction if she does not know the private key.

Dual Expenditure

The problem that internet payment systems must solve is "dual spending", where a user pays the same bitcoin to two or more customers. For example, such a problem would arise if Eve sends the same bitcoin first to Alice and then to Bob. To protect against double the cost, the Bitcoin network records all bitcoin transactions in a ledger (blockchain) that is visible to all users and ensures that the bitcoins traded have never been spent before. [6]: 4

Race Attack

If Eve pays Ellis for a product and signs a transaction agreement, she can arrange for a transaction to send the same bitcoin to Bob at the same time. As a rule, the network will only accept one transaction. This is called a "race attack" because there is a race to see which transaction will be accepted first. Ellis could reduce the risk of a race attack by imposing on the contract that he would not deliver the product until Eve's payment was visible on the blockchain. [9]

A different type of race attack (called a Finney attack according to Hal Finney's reference) requires a minor. Instead of sending a payment request to both the network (Bob and Alice with the same coin), Eve asks the network to not only pay Alice, but meanwhile tries to mine a block that includes Bob's payment instead of Alice. In this case, there is a good chance that the fraudster will achieve his misdeed before the payment of Alice is rejected by the Minor Network. By waiting for your payment to be included in the blockchain, Ellis can reduce the risk of a fini attack, as in a normal race attack. [10]

Change history

At the beginning of each block added to the blockchain is a block containing the information of the given transaction which is called the approval of that transaction. Ideally, merchants and services accepting payments via Bitcoin should wait for at least one approval to be distributed over the network before assuming payment is completed. The longer a trader waits for approval, the harder it is for an attacker to reverse blockchain transactions - unless the attacker brings more than half of the total network capacity to the bug, or 51%. [11]

Client de-anonymization

In the case of data mining, de-anonymization is a technique of combining anonymous data with other data sources to re-mark anonymous data sources. Transaction graph analysis (which can reveal links between Bitcoin pseudonymous addresses) [8] [12] as well as attacks that can link a user's pseudonym to his IP address. [13] If the peer connection uses "tor" , Is attacked in such a way that the peer is disconnected from the Tor network, then forced to use their real IP address for any subsequent transactions. Such attacks could also exploit Bitcoin's peer-to-peer address and anti-Dodge protection broadcasting methods. It costs less than € 1500 per month to attack an entire bitcoin network.

Payment Verification

Each minor can determine whether or not there are any transactions in a block. [14] The number of transactions in a block is not equal to the maximum amount of computational capacity required to solve that block.

References