Bitcoin Wallets - Revision history

NKirnbauer: fixed link

2024-08-23T06:40:54Z

fixed link

← Older revision		Revision as of 06:40, 23 August 2024
Line 108:		Line 108:
	A miner is a node on the bitcoin network which installs and runs a special Blockchain mining software to communicate securely with the other nodes on the network. The process of mining bitcoins consumes a lot of computing power, hence, it requires a special set of hardware and software that works well for that purpose <ref name=”RE10”> Buquan Liu. "Overview of the basic principles of blockchain". In 2021 Interna-		A miner is a node on the bitcoin network which installs and runs a special Blockchain mining software to communicate securely with the other nodes on the network. The process of mining bitcoins consumes a lot of computing power, hence, it requires a special set of hardware and software that works well for that purpose <ref name=”RE10”> Buquan Liu. "Overview of the basic principles of blockchain". In 2021 Interna-
	tional Conference on Intelligent Computing, Automation and Applications		tional Conference on Intelligent Computing, Automation and Applications
	(ICAA), pages 588–593, 202 </ref>. Each block in the Blockchain is created by one of those miners, whose goal it is, to solve a crypto task that verifies the creation of a block. As compensation, the fastest miner whose block is actually attached to the Blockchain receives a certain number of bitcoins. A new mined block will get broadcasted to the network where each node validates it by first checking the proof of work and if the merkle tree coincides with the transactions listed inside the block. A transaction is only confirmed when a certain number of new blocks got added to the block the transaction is located. This is called maturity and the Bitcoin documentation recommends 6 blocks as a maturity level <ref name=”RE11”> Raj Roshan. "History of blockchain" . https://intellipaat.com/blog/		(ICAA), pages 588–593, 202 </ref>. Each block in the Blockchain is created by one of those miners, whose goal it is, to solve a crypto task that verifies the creation of a block. As compensation, the fastest miner whose block is actually attached to the Blockchain receives a certain number of bitcoins. A new mined block will get broadcasted to the network where each node validates it by first checking the proof of work and if the merkle tree coincides with the transactions listed inside the block. A transaction is only confirmed when a certain number of new blocks got added to the block the transaction is located. This is called maturity and the Bitcoin documentation recommends 6 blocks as a maturity level <ref name=”RE11”> Raj Roshan. "History of blockchain" . https://intellipaat.com/blog/tutorial/blockchain-tutorial/history-of-blockchain/, 2022 </ref>.
	tutorial/blockchain-tutorial/history-of-blockchain/, 2022 </ref>.
	Part of the Block header is the Nonce. Nonce stands for a Number Used Once, meaning that the block´s hash meets certain criterion to be valid. This criterion in Blockchain Hashes is, that the hash must include a predefined number of leading zeros. The number of zeros the hash needs to have, is defined by the Difficulty Target. The higher the Difficulty Target, the more leading zeros the hash must provide. A nonce is a random number that enables to block to provide a valid hash. There is no other way than to calculate that number manually. The miner typically begins with a Nonce value of 1 and keep increasing it until the resulting hash satisfies the required threshold. As a result, it can take a fair amount of repetitions to obtain the appropriate hash with the demanded leading zeros. The Bitcoin system anticipates a block to be generated in 10 minutes and adapts the Difficulty Target to meet that time <ref name=”RE10”/>		Part of the Block header is the Nonce. Nonce stands for a Number Used Once, meaning that the block´s hash meets certain criterion to be valid. This criterion in Blockchain Hashes is, that the hash must include a predefined number of leading zeros. The number of zeros the hash needs to have, is defined by the Difficulty Target. The higher the Difficulty Target, the more leading zeros the hash must provide. A nonce is a random number that enables to block to provide a valid hash. There is no other way than to calculate that number manually. The miner typically begins with a Nonce value of 1 and keep increasing it until the resulting hash satisfies the required threshold. As a result, it can take a fair amount of repetitions to obtain the appropriate hash with the demanded leading zeros. The Bitcoin system anticipates a block to be generated in 10 minutes and adapts the Difficulty Target to meet that time <ref name=”RE10”/>

NKirnbauer: /* Bitcoin Wallets and Security Risks */

2024-08-21T21:32:25Z

Bitcoin Wallets and Security Risks

← Older revision		Revision as of 21:32, 21 August 2024
Line 181:		Line 181:
	key if necessary. The passwords must be written on a piece of paper and kept safe.		key if necessary. The passwords must be written on a piece of paper and kept safe.
	However, this method also poses a security risk as the slip of paper with the information		However, this method also poses a security risk as the slip of paper with the information
	can get stolen or lost. In the first case, if a hacker discovers the word list, he		can get stolen or lost. In the first case, if a hacker discovers the word list, they
	may be able to attempt the passphrase via brute force. Therefore, the user ~~have~~ to		may be able to attempt the passphrase via brute force. Therefore, the user has to
	pick a long, difficult passphrase. In the second case, the user will be unable to retrieve		pick a long, difficult passphrase. In the second case, the user will be unable to retrieve
	the keys and forfeit all money if ~~she selects~~ a difficult-to-remember long passphrase		the keys and forfeit all money if they select a difficult-to-remember long passphrase
	<ref name=”RE12”> Hossein Rezaeighaleh and Cliff C. Zou. "New secure approach to backup		<ref name=”RE12”> Hossein Rezaeighaleh and Cliff C. Zou. "New secure approach to backup
	cryptocurrency wallets". In 2019 IEEE Global Communications Conference		cryptocurrency wallets". In 2019 IEEE Global Communications Conference
	(GLOBECOM), pages 1–6, 2019 </ref>. It is very important to create secure passwords for any wallet you may choose and take regular backups of the seed phrases, private keys, and wallet data files.		(GLOBECOM), pages 1–6, 2019 </ref>. It is very important to create secure passwords for any wallet you may choose and take regular backups of the seed phrases, private keys, and wallet data files.

	Another problem ~~useres~~ of Bitcoin wallets face are risks of social engineering and phishing attacks, which exploit human psychology rather than technical vulnerabilities. These techniques trick people into ~~disclousing~~ sensitive information or granting access to their assests. The most common attacks are ~~deceiptive~~ mails, messages, or fake websites which aim to get access to all kind of different information, like target IP, username and password. Once an attacker has access to this data, they gain full control, allowing unauthorized access and ~~trasactions~~. Phishing websites most commonly mimic ~~legitamate~~ services or websites, like PayPal for example, making them difficult to distinguish from the real provider <ref name"Andruykhin">A. A. Andryukhin, "Phishing Attacks and Preventions in Blockchain Based Projects," 2019 International Conference on Engineering Technologies and Computer Science (EnT), Moscow, Russia, 2019, pp. 15-19, doi: 10.1109/EnT.2019.00008.</ref>.		Another problem users of Bitcoin wallets face are risks of social engineering and phishing attacks, which exploit human psychology rather than technical vulnerabilities. These techniques trick people into disclosing sensitive information or granting access to their assests. The most common attacks are deceptive mails, messages, or fake websites which aim to get access to all kind of different information, like target IP, username and password. Once an attacker has access to this data, they gain full control, allowing unauthorized access and transactions. Phishing websites most commonly mimic legitimate services or websites, like PayPal for example, making them difficult to distinguish from the real provider <ref name"Andruykhin">A. A. Andryukhin, "Phishing Attacks and Preventions in Blockchain Based Projects," 2019 International Conference on Engineering Technologies and Computer Science (EnT), Moscow, Russia, 2019, pp. 15-19, doi: 10.1109/EnT.2019.00008.</ref>.

	After examining and studying different threats and risks, it becomes evident, that the human being is the most vulnerable in the cyber security chain because of the so called "Social Engineering" techniques. Therefore, educating users in terms of threats like phishing attempts, passwords, and storage options becomes decisive in defending against theses kinds of attacks. A well-informed user is more likely to recognize threats like phishing emails by identifying suspicious communication, taking preventive steps like haveing a strong password with two-factor authentication, and carefully ~~decideing~~ when choosing a wallet for storing digital assets <ref name"Ivanov">		After examining and studying different threats and risks, it becomes evident, that the human being is the most vulnerable in the cyber security chain because of the so called "Social Engineering" techniques. Therefore, educating users in terms of threats like phishing attempts, passwords, and storage options becomes decisive in defending against theses kinds of attacks. A well-informed user is more likely to recognize threats like phishing emails by identifying suspicious communication, taking preventive steps like haveing a strong password with two-factor authentication, and carefully deciding when choosing a wallet for storing digital assets <ref name"Ivanov">
	Ivanov, M.A. et al. (2021) ‘Phishing Attacks and Protection Against Them’. Available at: https://doi.org/10.1109/elconrus51938.2021.9396693</ref>.		Ivanov, M.A. et al. (2021) ‘Phishing Attacks and Protection Against Them’. Available at: https://doi.org/10.1109/elconrus51938.2021.9396693</ref>.

NKirnbauer: /* Bitcoin transaction */

2024-08-21T21:21:19Z

Bitcoin transaction

← Older revision		Revision as of 21:21, 21 August 2024
Line 101:		Line 101:
	Bitcoin uses public-key cryptography to ensure the integrity of transactions created on the network. In order to be able to transfer Bitcoin, each user owns a pair of public key and private key and thus can control the amount of bitcoin they own.		Bitcoin uses public-key cryptography to ensure the integrity of transactions created on the network. In order to be able to transfer Bitcoin, each user owns a pair of public key and private key and thus can control the amount of bitcoin they own.
	A public key is a string of characters (letters and numbers) that a user must share it with other users to receive funds, while a private key must be kept secret because it controls the amount of Bitcoin owned or received by the user.		A public key is a string of characters (letters and numbers) that a user must share it with other users to receive funds, while a private key must be kept secret because it controls the amount of Bitcoin owned or received by the user.
	The user signs the transactions using ~~his~~ private key to transfer the value to a new owner, and this transaction is then broadcast over the network to be added to the blockchain.		The user signs the transactions using their private key to transfer the value to a new owner, and this transaction is then broadcast over the network to be added to the blockchain.
	The final stage is the '''mining stage''', where the transaction is added to the Blockchain after confirming that it is correct, and so that it is public for all users.		The final stage is the '''mining stage''', where the transaction is added to the Blockchain after confirming that it is correct, and so that it is public for all users.

Line 123:		Line 123:
	When compared to other transactions Bitcoin can handle up to 7 transactions per second with the current block size of 1 Mb. Clearly, the main blockchain is not very scalable. A new technique called the Lightning network is coming out to solve the scalability problem.		When compared to other transactions Bitcoin can handle up to 7 transactions per second with the current block size of 1 Mb. Clearly, the main blockchain is not very scalable. A new technique called the Lightning network is coming out to solve the scalability problem.
	The key idea is that small everyday transactions do not have to be stored on the main blockchain. So how does it work?		The key idea is that small everyday transactions do not have to be stored on the main blockchain. So how does it work?
	Creating a transaction on the blockchain for a small fee is really overkill, however, with the lightning network, for example, user1 can set up a payment channel with user2. To do that, both user2 and user1 deposit a certain amount of Bitcoin in what is called a Multi-signature address. The multi-signature address is basically like a safe that can only be opened when both parties agree. Opening the payment channel, which occurs on the main blockchain, makes a balance sheet that reports how much money in the address has to be distributed and that guarantees full transparency. Now the channel is open, user1 can order what ~~he wants~~ to buy from user2, by changing the balance sheet. ~~He subtracts~~ the cost from ~~his~~ balance and ~~adds~~ it to user2’s balance. User1 and user2 now sign the updated balance sheet with their private keys, then they each keep a copy of it, but they do not do anything else with it. User1 can keep ordering as long as ~~he has~~ a balance in the payment channel. There is no limit because this happens away from the main blockchain. The payment channel can be closed at any time by either user1 or user2, all they have to do is take the latest balance sheet, which was signed by both users, and transmits it to the Bitcoin network. After that by the mining stage, it will be checked if everything is correct (validate the signatures) and then transfer money according to the balance sheet. Whereupon only one transaction will be made on the Bitcoin blockchain.		Creating a transaction on the blockchain for a small fee is really overkill, however, with the lightning network, for example, user1 can set up a payment channel with user2. To do that, both user2 and user1 deposit a certain amount of Bitcoin in what is called a Multi-signature address. The multi-signature address is basically like a safe that can only be opened when both parties agree. Opening the payment channel, which occurs on the main blockchain, makes a balance sheet that reports how much money in the address has to be distributed and that guarantees full transparency. Now the channel is open, user1 can order what they want to buy from user2, by changing the balance sheet. They subtract the cost from their balance and add it to user2’s balance. User1 and user2 now sign the updated balance sheet with their private keys, then they each keep a copy of it, but they do not do anything else with it. User1 can keep ordering as long as they have a balance in the payment channel. There is no limit because this happens away from the main blockchain. The payment channel can be closed at any time by either user1 or user2, all they have to do is take the latest balance sheet, which was signed by both users, and transmits it to the Bitcoin network. After that by the mining stage, it will be checked if everything is correct (validate the signatures) and then transfer money according to the balance sheet. Whereupon only one transaction will be made on the Bitcoin blockchain.
	And thus, the reduction of the load on the main blockchain happened, all we need is two transactions, one for opening the payment channel and another one to close it. It is also very safe. The system ensures that only the latest signed balance sheet can be used to unlock money and because both parties have a signed copy of the balance sheets, they can release the funds at any time, even if the other does not want to cooperate anymore. Also, you do not need to open a direct payment channel with everyone you want to send bitcoin to.		And thus, the reduction of the load on the main blockchain happened, all we need is two transactions, one for opening the payment channel and another one to close it. It is also very safe. The system ensures that only the latest signed balance sheet can be used to unlock money and because both parties have a signed copy of the balance sheets, they can release the funds at any time, even if the other does not want to cooperate anymore. Also, you do not need to open a direct payment channel with everyone you want to send bitcoin to.
	In the lightning network, your payment tries to find a route from person A to person B and it tries to do this with the least amount of intermediates and the least amount of fees. This further reduces the strain on the blockchain, but it requires the intermediates to have enough money in the payment channels.		In the lightning network, your payment tries to find a route from person A to person B and it tries to do this with the least amount of intermediates and the least amount of fees. This further reduces the strain on the blockchain, but it requires the intermediates to have enough money in the payment channels.

NKirnbauer: /* Bitcoin transaction */

2024-08-21T20:42:31Z

Bitcoin transaction

NKirnbauer: /* Bitcoin transaction */

2024-08-21T19:49:31Z

Bitcoin transaction

← Older revision		Revision as of 19:49, 21 August 2024
Line 85:		Line 85:
	Some nodes may perform only one particular function. The items that participate in the mining process are referred to as mining nodes while other items that create transactions are referred to as wallets. In most Bitcoin software applications, all nodes are handled evenly and can be identified by their IP addresses.<ref name=”RE3”/>		Some nodes may perform only one particular function. The items that participate in the mining process are referred to as mining nodes while other items that create transactions are referred to as wallets. In most Bitcoin software applications, all nodes are handled evenly and can be identified by their IP addresses.<ref name=”RE3”/>
	====Bitcoin transaction====		====Bitcoin transaction====
	Bitcoin transaction is the transfer of an amount of BTC ownership rights from the wallet of the buyer (from one address ) to the wallet of the seller (to another address), in exchange for a product or service.		Bitcoin transaction is the transfer of an amount of BTC ownership rights from the wallet of the buyer (from one address) to the wallet of the seller (to another address), in exchange for a product or service.
	There are two types of Bitcoin ~~transaction~~: ~~Standards~~ and Nonstandard transactions.		There are two types of Bitcoin transactions: Standard and Nonstandard transactions.
	The list of standards transactions is described as follows.<ref name=”RE3”/>		The list of standards transactions is described as follows.<ref name=”RE3”/>
	<ol style="list-style-type:lower-decimal">		<ol style="list-style-type:lower-decimal">
Line 97:		Line 97:
	Nonstandard transactions use more complicated scripts that aim to provide higher complexity and security. Sometimes these transactions may be the result of bugs or mistakes which leads to loss of BTC.		Nonstandard transactions use more complicated scripts that aim to provide higher complexity and security. Sometimes these transactions may be the result of bugs or mistakes which leads to loss of BTC.

	'''How ~~does~~ the transactions work?'''		'''How do the transactions work?'''

	Bitcoin uses ~~the~~ public-key cryptography to ensure the integrity of transactions created on the network. In order to be able to transfer Bitcoin, each user owns a pair of public key and private key and thus can control the amount of bitcoin they own.		Bitcoin uses public-key cryptography to ensure the integrity of transactions created on the network. In order to be able to transfer Bitcoin, each user owns a pair of public key and private key and thus can control the amount of bitcoin they own.
	A public key is a string of characters (letters and numbers) that a user must share it with ~~the~~ other users ~~so that can be able~~ to receive funds~~. While~~ a private key must be kept secret because it controls the amount of Bitcoin owned or received by the user.		A public key is a string of characters (letters and numbers) that a user must share it with other users to receive funds, while a private key must be kept secret because it controls the amount of Bitcoin owned or received by the user.
	The user signs the transactions using his private key to transfer the value to a new owner, and this transaction is then broadcast over the network to be added to the blockchain.		The user signs the transactions using his private key to transfer the value to a new owner, and this transaction is then broadcast over the network to be added to the blockchain.
	~~And then comes the last~~ stage~~, which~~ is the '''mining stage''', where the transaction is added to the Blockchain after confirming that it is correct, and so that it is public for all users.		The final stage is the '''mining stage''', where the transaction is added to the Blockchain after confirming that it is correct, and so that it is public for all users.

	'''Bitcoin Mining'''		'''Bitcoin Mining'''

NKirnbauer: /* Bitcoin */

2024-08-21T19:25:15Z

Bitcoin

← Older revision		Revision as of 19:25, 21 August 2024
Line 81:		Line 81:
	There are two types of nodes:		There are two types of nodes:
	<li>'''Full node''' is a node that can perform all the functions, which continuously maintains a copy of the full blockchain making it able to verify any transaction without reference to other nodes. It also has a BTC wallet that can create transactions and calculate the value of BTC owned by the node. </li>		<li>'''Full node''' is a node that can perform all the functions, which continuously maintains a copy of the full blockchain making it able to verify any transaction without reference to other nodes. It also has a BTC wallet that can create transactions and calculate the value of BTC owned by the node. </li>
	<li>'''Simplified payment verification (SPV) nodes''' or lightweight nodes are ~~a node does~~ not store a full copy of the blockchain ~~that~~ is why they need support from full nodes when they want ~~verifying~~ a transaction.</li>		<li>'''Simplified payment verification (SPV) nodes''' or lightweight nodes are nodes that do not store a full copy of the blockchain. That is why they need support from full nodes when they want to verify a transaction.</li>
	</ol>		</ol>
	Some nodes may perform only one particular function. The items that participate in the mining process are referred to as mining nodes while other items that create transactions are referred to as wallets. In most Bitcoin software applications, all nodes are handled evenly and can be identified by their IP addresses.<ref name=”RE3”/>		Some nodes may perform only one particular function. The items that participate in the mining process are referred to as mining nodes while other items that create transactions are referred to as wallets. In most Bitcoin software applications, all nodes are handled evenly and can be identified by their IP addresses.<ref name=”RE3”/>

NKirnbauer: /* Blockchain */

2024-08-20T19:38:41Z

Blockchain

NKirnbauer: /* Blockchain and Bitcoin */

2024-08-20T18:59:28Z

Blockchain and Bitcoin

← Older revision		Revision as of 18:59, 20 August 2024
Line 9:		Line 9:
	Each block contains some data, the hash of the block and the hash of the previous block. The hash of the block is calculated as a Merkel Tree.		Each block contains some data, the hash of the block and the hash of the previous block. The hash of the block is calculated as a Merkel Tree.

	''' The ~~Merkel~~ Tree''' is sort of hash binary tree that allows for the speedy and efficient summarization of enormous volumes of data. In addition, the integrity of the data is controlled at the same time. The entire data is made of several documents where for each leaf node a hash of one of these documents is created. Then the hash is calculated recursively from the bottom up. Finally, the value of the Merkle Tree Root represents the hash value of the entire data block.<ref name=”RE10”/>		''' The Merkle Tree''' is sort of hash binary tree that allows for the speedy and efficient summarization of enormous volumes of data. In addition, the integrity of the data is controlled at the same time. The entire data is made of several documents where for each leaf node a hash of one of these documents is created. Then the hash is calculated recursively from the bottom up. Finally, the value of the Merkle Tree Root represents the hash value of the entire data block.<ref name=”RE10”/>

	The data that is stored inside a block depends on the type of blockchain. The Bitcoin blockchain for example stores the details about a transaction such as the sender, receiver, and amount of coins.		The data that is stored inside a block depends on the type of blockchain. The Bitcoin blockchain for example stores the details about a transaction such as the sender, receiver, and amount of coins.

MFajic: /* Bitcoin Wallets and Security Risks */

2024-01-08T17:22:59Z

Bitcoin Wallets and Security Risks

← Older revision		Revision as of 17:22, 8 January 2024
Line 193:		Line 193:
	After examining and studying different threats and risks, it becomes evident, that the human being is the most vulnerable in the cyber security chain because of the so called "Social Engineering" techniques. Therefore, educating users in terms of threats like phishing attempts, passwords, and storage options becomes decisive in defending against theses kinds of attacks. A well-informed user is more likely to recognize threats like phishing emails by identifying suspicious communication, taking preventive steps like haveing a strong password with two-factor authentication, and carefully decideing when choosing a wallet for storing digital assets <ref name"Ivanov">		After examining and studying different threats and risks, it becomes evident, that the human being is the most vulnerable in the cyber security chain because of the so called "Social Engineering" techniques. Therefore, educating users in terms of threats like phishing attempts, passwords, and storage options becomes decisive in defending against theses kinds of attacks. A well-informed user is more likely to recognize threats like phishing emails by identifying suspicious communication, taking preventive steps like haveing a strong password with two-factor authentication, and carefully decideing when choosing a wallet for storing digital assets <ref name"Ivanov">
	Ivanov, M.A. et al. (2021) ‘Phishing Attacks and Protection Against Them’. Available at: https://doi.org/10.1109/elconrus51938.2021.9396693</ref>.		Ivanov, M.A. et al. (2021) ‘Phishing Attacks and Protection Against Them’. Available at: https://doi.org/10.1109/elconrus51938.2021.9396693</ref>.
	.

	==Conclusion==		==Conclusion==

MFajic: /* Bitcoin Wallets and Security Risks */

2024-01-08T17:22:31Z

Bitcoin Wallets and Security Risks

← Older revision		Revision as of 17:22, 8 January 2024
Line 190:		Line 190:

	Another problem useres of Bitcoin wallets face are risks of social engineering and phishing attacks, which exploit human psychology rather than technical vulnerabilities. These techniques trick people into disclousing sensitive information or granting access to their assests. The most common attacks are deceiptive mails, messages, or fake websites which aim to get access to all kind of different information, like target IP, username and password. Once an attacker has access to this data, they gain full control, allowing unauthorized access and trasactions. Phishing websites most commonly mimic legitamate services or websites, like PayPal for example, making them difficult to distinguish from the real provider <ref name"Andruykhin">A. A. Andryukhin, "Phishing Attacks and Preventions in Blockchain Based Projects," 2019 International Conference on Engineering Technologies and Computer Science (EnT), Moscow, Russia, 2019, pp. 15-19, doi: 10.1109/EnT.2019.00008.</ref>.		Another problem useres of Bitcoin wallets face are risks of social engineering and phishing attacks, which exploit human psychology rather than technical vulnerabilities. These techniques trick people into disclousing sensitive information or granting access to their assests. The most common attacks are deceiptive mails, messages, or fake websites which aim to get access to all kind of different information, like target IP, username and password. Once an attacker has access to this data, they gain full control, allowing unauthorized access and trasactions. Phishing websites most commonly mimic legitamate services or websites, like PayPal for example, making them difficult to distinguish from the real provider <ref name"Andruykhin">A. A. Andryukhin, "Phishing Attacks and Preventions in Blockchain Based Projects," 2019 International Conference on Engineering Technologies and Computer Science (EnT), Moscow, Russia, 2019, pp. 15-19, doi: 10.1109/EnT.2019.00008.</ref>.

			After examining and studying different threats and risks, it becomes evident, that the human being is the most vulnerable in the cyber security chain because of the so called "Social Engineering" techniques. Therefore, educating users in terms of threats like phishing attempts, passwords, and storage options becomes decisive in defending against theses kinds of attacks. A well-informed user is more likely to recognize threats like phishing emails by identifying suspicious communication, taking preventive steps like haveing a strong password with two-factor authentication, and carefully decideing when choosing a wallet for storing digital assets <ref name"Ivanov">
			Ivanov, M.A. et al. (2021) ‘Phishing Attacks and Protection Against Them’. Available at: https://doi.org/10.1109/elconrus51938.2021.9396693</ref>.
			.

	==Conclusion==		==Conclusion==

← Older revision		Revision as of 20:42, 21 August 2024
Line 106:		Line 106:
	'''Bitcoin Mining'''		'''Bitcoin Mining'''

	A miner is a node on the bitcoin network which ~~installed~~ and runs a special Blockchain mining software to communicate securely with the other nodes on the network. The process of mining bitcoins ~~consume~~ a lot of computing power, hence, it requires a special set of hardware and software that works well for that purpose <ref name=”RE10”> Buquan Liu. "Overview of the basic principles of blockchain". In 2021 Interna-		A miner is a node on the bitcoin network which installs and runs a special Blockchain mining software to communicate securely with the other nodes on the network. The process of mining bitcoins consumes a lot of computing power, hence, it requires a special set of hardware and software that works well for that purpose <ref name=”RE10”> Buquan Liu. "Overview of the basic principles of blockchain". In 2021 Interna-
	tional Conference on Intelligent Computing, Automation and Applications		tional Conference on Intelligent Computing, Automation and Applications
	(ICAA), pages 588–593, 202 </ref>. Each block in the Blockchain is created by one of those miners, whose goal it is, to solve a crypto task that verifies the creation of a block. As compensation, the fastest miner whose block is actually attached to the Blockchain receives a certain number of bitcoins. A new mined block will get broadcasted to the network where each node validates it by first checking the proof of work and if the merkle tree coincides with the transactions listed inside the block. A transaction is only confirmed when a certain number of new blocks got added to the block the transaction is located. This is called maturity and the Bitcoin documentation recommends 6 ~~block~~ as a maturity level <ref name=”RE11”> Raj Roshan. "History of blockchain" . https://intellipaat.com/blog/		(ICAA), pages 588–593, 202 </ref>. Each block in the Blockchain is created by one of those miners, whose goal it is, to solve a crypto task that verifies the creation of a block. As compensation, the fastest miner whose block is actually attached to the Blockchain receives a certain number of bitcoins. A new mined block will get broadcasted to the network where each node validates it by first checking the proof of work and if the merkle tree coincides with the transactions listed inside the block. A transaction is only confirmed when a certain number of new blocks got added to the block the transaction is located. This is called maturity and the Bitcoin documentation recommends 6 blocks as a maturity level <ref name=”RE11”> Raj Roshan. "History of blockchain" . https://intellipaat.com/blog/
	tutorial/blockchain-tutorial/history-of-blockchain/, 2022 </ref>.		tutorial/blockchain-tutorial/history-of-blockchain/, 2022 </ref>.
	Part of the Block header is the Nonce. Nonce stands for a Number Used Once, meaning that the block´s hash meets certain criterion to be valid. This criterion in Blockchain Hashes is, that the hash must include a predefined number of leading zeros. The number of zeros the hash needs to have, is defined by the Difficulty Target. The higher the Difficulty Target, the more leading zeros the hash must provide. A nonce is a random number that enables to block to provide a valid hash. There is no other way than to calculate that number manually. The miner typically begins with a Nonce value of 1 and keep increasing it until the resulting hash satisfies the required threshold. As a result, it can take a fair amount of repetitions to obtain the appropriate hash with the demanded leading zeros. The Bitcoin system anticipates a block to be generated in 10 minutes and ~~adapt~~ the Difficulty Target to meet that time <ref name=”RE10”/>		Part of the Block header is the Nonce. Nonce stands for a Number Used Once, meaning that the block´s hash meets certain criterion to be valid. This criterion in Blockchain Hashes is, that the hash must include a predefined number of leading zeros. The number of zeros the hash needs to have, is defined by the Difficulty Target. The higher the Difficulty Target, the more leading zeros the hash must provide. A nonce is a random number that enables to block to provide a valid hash. There is no other way than to calculate that number manually. The miner typically begins with a Nonce value of 1 and keep increasing it until the resulting hash satisfies the required threshold. As a result, it can take a fair amount of repetitions to obtain the appropriate hash with the demanded leading zeros. The Bitcoin system anticipates a block to be generated in 10 minutes and adapts the Difficulty Target to meet that time <ref name=”RE10”/>

	[[File:Blockchain.png\|frameless\|center\|caption]]		[[File:Blockchain.png\|frameless\|center\|caption]]
Line 123:		Line 123:
	When compared to other transactions Bitcoin can handle up to 7 transactions per second with the current block size of 1 Mb. Clearly, the main blockchain is not very scalable. A new technique called the Lightning network is coming out to solve the scalability problem.		When compared to other transactions Bitcoin can handle up to 7 transactions per second with the current block size of 1 Mb. Clearly, the main blockchain is not very scalable. A new technique called the Lightning network is coming out to solve the scalability problem.
	The key idea is that small everyday transactions do not have to be stored on the main blockchain. So how does it work?		The key idea is that small everyday transactions do not have to be stored on the main blockchain. So how does it work?
	Creating a transaction on the blockchain for a small fee is really overkill, however, with the lightning network, for example, user1 can set up a payment channel with ~~the~~ user2. To do that, both user2 and user1 deposit a certain amount of Bitcoin in what is called a Multi-signature address. The multi-signature address is basically like a safe that can only be opened when both parties agree. Opening the payment channel, which occurs on the main blockchain, makes a balance sheet reports how much money in the address has to be distributed and that guarantees full transparency. Now the channel is open, user1 can order what he wants to buy from user2, by changing the balance sheet. He subtracts the cost from his balance and adds it to user2’s balance. User1 and user2 now sign the updated balance sheet with their private keys, then they each keep a copy of it, but they do not do anything else with it. User1 can keep ordering as long as he has a balance in the payment channel. There is no limit because this happens away from the main blockchain. The payment channel can be closed at any time by either user1 or user2, all they have to do is take the latest balance sheet, which was signed by both users, and ~~transmissions~~ it to the Bitcoin network. After that by the mining stage, it will be checked if everything is correct (validate the signatures) and then transfer money according to the balance sheet. Whereupon only one transaction will be made on the Bitcoin blockchain.		Creating a transaction on the blockchain for a small fee is really overkill, however, with the lightning network, for example, user1 can set up a payment channel with user2. To do that, both user2 and user1 deposit a certain amount of Bitcoin in what is called a Multi-signature address. The multi-signature address is basically like a safe that can only be opened when both parties agree. Opening the payment channel, which occurs on the main blockchain, makes a balance sheet that reports how much money in the address has to be distributed and that guarantees full transparency. Now the channel is open, user1 can order what he wants to buy from user2, by changing the balance sheet. He subtracts the cost from his balance and adds it to user2’s balance. User1 and user2 now sign the updated balance sheet with their private keys, then they each keep a copy of it, but they do not do anything else with it. User1 can keep ordering as long as he has a balance in the payment channel. There is no limit because this happens away from the main blockchain. The payment channel can be closed at any time by either user1 or user2, all they have to do is take the latest balance sheet, which was signed by both users, and transmits it to the Bitcoin network. After that by the mining stage, it will be checked if everything is correct (validate the signatures) and then transfer money according to the balance sheet. Whereupon only one transaction will be made on the Bitcoin blockchain.
	And thus, the reduction of the load on the main blockchain happened, all we need is two transactions, one for opening the payment channel and another one to close it. It is also very safe. The system ensures that only the latest signed balance sheet can be used to unlock money and because both parties have a signed copy of the balance sheets, they can release the funds at any time, even if the other does not want to cooperate anymore. Also, you do not need to open a direct payment channel with everyone you want to send bitcoin to.		And thus, the reduction of the load on the main blockchain happened, all we need is two transactions, one for opening the payment channel and another one to close it. It is also very safe. The system ensures that only the latest signed balance sheet can be used to unlock money and because both parties have a signed copy of the balance sheets, they can release the funds at any time, even if the other does not want to cooperate anymore. Also, you do not need to open a direct payment channel with everyone you want to send bitcoin to.
	In the lightning network, your payment tries to find a route from person A to person B and it tries to do this with the least amount of intermediates and the least amount of fees. This further reduces the strain on the blockchain, but it requires the intermediates to have enough money in the payment channels.		In the lightning network, your payment tries to find a route from person A to person B and it tries to do this with the least amount of intermediates and the least amount of fees. This further reduces the strain on the blockchain, but it requires the intermediates to have enough money in the payment channels.

← Older revision		Revision as of 19:38, 20 August 2024
Line 7:		Line 7:
	Blockchain is a data structure that makes it possible to create a digital ledger of transactions and share it among a distributed network of computers, continuously updated simultaneously and secure with encryption. Anyone can access and get the same information.<ref name=”RE1”/>		Blockchain is a data structure that makes it possible to create a digital ledger of transactions and share it among a distributed network of computers, continuously updated simultaneously and secure with encryption. Anyone can access and get the same information.<ref name=”RE1”/>
	'''How does Blockchain work?'''		'''How does Blockchain work?'''
	Each block contains some data, the hash of the block and the hash of the previous block. The hash of the block is calculated as a ~~Merkel~~ Tree.		Each block contains some data, the hash of the block and the hash of the previous block. The hash of the block is calculated as a Merkle Tree.

	''' The Merkle Tree''' is sort of hash binary tree that allows for the speedy and efficient summarization of enormous volumes of data. In addition, the integrity of the data is controlled at the same time. The entire data is made of several documents where for each leaf node a hash of one of these documents is created. Then the hash is calculated recursively from the bottom up. Finally, the value of the Merkle Tree Root represents the hash value of the entire data block.<ref name=”RE10”/>		''' The Merkle Tree''' is sort of hash binary tree that allows for the speedy and efficient summarization of enormous volumes of data. In addition, the integrity of the data is controlled at the same time. The entire data is made of several documents where for each leaf node a hash of one of these documents is created. Then the hash is calculated recursively from the bottom up. Finally, the value of the Merkle Tree Root represents the hash value of the entire data block.<ref name=”RE10”/>

	The data that is stored inside a block depends on the type of blockchain. The Bitcoin blockchain for example stores the details about a transaction such as the sender, receiver, and amount of coins.		The data that is stored inside a block depends on the type of blockchain. The Bitcoin blockchain for example stores the details about a transaction such as the sender, receiver, and amount of coins.
	A block also has hash, you can compare a hash to a fingerprint. It identifies a block and all of its contents, and it is always unique.		A block also has a hash, you can compare a hash to a fingerprint. It identifies a block and all of its contents, and it is always unique.
	Once a block is created, its hash is being calculated. Changing something inside the block will cause the hash to change.		Once a block is created, its hash is being calculated. Changing something inside the block will cause the hash to change.
	So, in other words, hashes are very useful when you want to detect changes to blocks. If the fingerprint of the block changes, it no longer is the same block.		So, in other words, hashes are very useful when you want to detect changes to blocks. If the fingerprint of the block changes, it no longer is the same block.
Line 21:		Line 21:
	[[File:Capture11.png\|frameless\|center\|caption]]		[[File:Capture11.png\|frameless\|center\|caption]]

	Changing a single block will make all following blocks invalid. But using hashes is not enough to prevent tampering. Computers these days are very fast and can calculate hundreds of thousands of hashes per second, so to mitigate this, blockchain ~~have something~~ called proof-of-work, which is a mechanism that allows down the creation of new blocks. In other words when new chain was created the proof-of-work on blockchain concept is the consensus mechanism on so-called miners.<ref name=”RE1”/>		Changing a single block will make all following blocks invalid. But using hashes is not enough to prevent tampering. Computers these days are very fast and can calculate hundreds of thousands of hashes per second, so to mitigate this, blockchain technology incorporates a mechanism called proof-of-work, which is a mechanism that allows slow down the creation of new blocks. In other words when the new chain was created the proof-of-work on blockchain concept is the consensus mechanism on so-called miners.<ref name=”RE1”/>
	In the case of Bitcoin, it takes about 10 minutes to calculate the required '''proof-of-work''' and add a new block to the chain.		In the case of Bitcoin, it takes about 10 minutes to calculate the required '''proof-of-work''' and add a new block to the chain.
	This mechanism makes it very hard to tamper with the blocks, because if you tamper with one block, you’ll need to recalculate the proof-of-work for all the following blocks <ref name=”RE9”>Yaga, D., Mell, P., Roby, N., & Scarfone, K. (2018). Blockchain technology overview. arXiv: Cryptography and Security</ref>.		This mechanism makes it very hard to tamper with the blocks, because if you tamper with one block, you’ll need to recalculate the proof-of-work for all the following blocks <ref name=”RE9”>Yaga, D., Mell, P., Roby, N., & Scarfone, K. (2018). Blockchain technology overview. arXiv: Cryptography and Security</ref>.
	So, the security of a blockchain comes from its creative use of hashing and the proof-of-work mechanism <ref name=”RE9”/>.		So, the security of a blockchain comes from its creative use of hashing and the proof-of-work mechanism <ref name=”RE9”/>.
	But there is one more way that blockchain ~~secure themselves~~ and that is by being '''distributed'''.		But there is one more way that blockchain secures itself and that is by being '''distributed'''.
	Instead of using a central entity to manage the chain, blockchain uses a peer-to-peer network and anyone is allowed to join <ref name=”RE9”/>. When someone joins this network, ~~he gets~~ the full copy of the blockchain .		Instead of using a central entity to manage the chain, blockchain uses a peer-to-peer network and anyone is allowed to join <ref name=”RE9”/>. When someone joins this network, they get the full copy of the blockchain.

	'''What happens when someone creates a new block?'''		'''What happens when someone creates a new block?'''
	The new block is sent to everyone on the network. Each node then verifies the block to make sure that is has not been tampered with. If everything checks, each node adds this block to their own blockchain. All the nodes in this network create consensus. They agree about what blocks are valid and which are not <ref name=”RE9”/>.		The new block is sent to everyone on the network. Each node then verifies the block to make sure that it has not been tampered with. If everything checks, each node adds this block to their own blockchain. All the nodes in this network create consensus. They agree about what blocks are valid and which are not <ref name=”RE9”/>.
	Blocks that are tampered with will be rejected by other nodes in the network <ref name=”RE9”/>.		Blocks that are tampered with will be rejected by other nodes in the network <ref name=”RE9”/>.
	So, to successfully tamper with a blockchain you will need to tamper with all blocks on the chain, redo the proof-of-work for each block and take control of more than 50% of the proof-of-work network.		So, to successfully tamper with a blockchain you will need to tamper with all blocks on the chain, redo the proof-of-work for each block and take control of more than 50% of the proof-of-work network.
Line 41:		Line 41:
	There are basically three types of blockchains. The use case will determine which type of blockchain is needed.		There are basically three types of blockchains. The use case will determine which type of blockchain is needed.
	<li> Public Blockchains </li>		<li> Public Blockchains </li>
	In a public blockchain, a user can become a member of the blockchain network. This means they can store, send and receive data after downloading the required software on their device~~. Allowing~~ anyone to read and write the data stored on the blockchain as it is accessible to everyone in the world.		In a public blockchain, a user can become a member of the blockchain network. This means they can store, send and receive data after downloading the required software on their device, allowing anyone to read and write the data stored on the blockchain as it is accessible to everyone in the world.
	A public blockchain is completely decentralized. The permissions to read and write data onto the blockchain are shared equally by all connected users, who come to a consensus before any data is stored on the database. The most popular example of a public blockchain is Bitcoin. The digital currency allows users to use a platform for making transactions directly between them.		A public blockchain is completely decentralized. The permissions to read and write data onto the blockchain are shared equally by all connected users, who come to a consensus before any data is stored on the database. The most popular example of a public blockchain is Bitcoin. The digital currency allows users to use a platform for making transactions directly between them.
	<li>Private Blockchains</li>		<li>Private Blockchains</li>
Line 47:		Line 47:
	An example of this is a blockchain deployed by a corporation to collaborate with other divisions or a few permissioned participants.		An example of this is a blockchain deployed by a corporation to collaborate with other divisions or a few permissioned participants.
	<li>Consortium Blockchains</li>		<li>Consortium Blockchains</li>
	A consortium blockchain, also called permissioned blockchain can be considered as a hybrid model between the low trust offered by public blockchains and the single highly trusted entity model of private blockchains. Instead of allowing any user to participate in the verification of the transaction process or on the other side just allowing one single company to have full control, in a consortium blockchain a few selected parties are predetermined. It only allows a limited number of users the permission to participate in the consensus process.For example, imagine a group or network of ten banks, each of which is connected to the blockchain network. In this example, we could imagine that for a block to be valid, seven of the ten banks have to agree.		A consortium blockchain, also called permissioned blockchain can be considered as a hybrid model between the low trust offered by public blockchains and the single highly trusted entity model of private blockchains. Instead of allowing any user to participate in the verification of the transaction process or on the other side just allowing one single company to have full control, in a consortium blockchain a few selected parties are predetermined. It only allows a limited number of users the permission to participate in the consensus process. For example, imagine a group or network of ten banks, each of which is connected to the blockchain network. In this example, we could imagine that for a block to be valid, seven of the ten banks have to agree.
	</ol>		</ol>

Line 63:		Line 63:
	A repository of documents such as birth certificates can also be created. With a secure repository in place, authorized personnel can be granted secure access to the certificate.		A repository of documents such as birth certificates can also be created. With a secure repository in place, authorized personnel can be granted secure access to the certificate.
	<li>Use Case 5: Cryptocurrencies</li>		<li>Use Case 5: Cryptocurrencies</li>
	Blockchain has introduced very dramatic changes into the financial field by creating cryptocurrencies, which rival fiat currencies in their use. The first-ever cryptocurrency transaction happened in 2009. Satoshi Nakamoto sent Hal Finney 10 Bitcoins, on January 11, 2009, Hal Finney tweeted, “Running ~~bitcoin”~~.		Blockchain has introduced very dramatic changes into the financial field by creating cryptocurrencies, which rival fiat currencies in their use. The first-ever cryptocurrency transaction happened in 2009. Satoshi Nakamoto sent Hal Finney 10 Bitcoins, on January 11, 2009, Hal Finney tweeted, “Running Bitcoin”.
	</ol>		</ol>