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17 Text: Lecture 1 Summary - Review, Readings, & More - CS198.1x Courseware - Edx PDF

Bitcoin is a digital currency that uses cryptography and a decentralized network to facilitate secure payments without an intermediary. Key aspects of Bitcoin include using a public ledger called a blockchain to record transactions, generating new bitcoins through mining, and using public/private key cryptography to verify transactions and control funds.

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122 views

17 Text: Lecture 1 Summary - Review, Readings, & More - CS198.1x Courseware - Edx PDF

Bitcoin is a digital currency that uses cryptography and a decentralized network to facilitate secure payments without an intermediary. Key aspects of Bitcoin include using a public ledger called a blockchain to record transactions, generating new bitcoins through mining, and using public/private key cryptography to verify transactions and control funds.

Uploaded by

Manuel De Luque Muntaner
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Text: Lecture 1 Summary


Author: Rea Savla

I. What is Bitcoin?
Cryptocurrency is a completely digital, formless currency, tied
together using computer science, cryptography and economics.
Bitcoin is the first and most widely used cryptocurrency.

Bitcoin is inspired by the Cypherpunk Movement in the 1980s, which


advocated for protection of privacy from external entities using
cryptography. Satoshi Nakamoto first outlined and created Bitcoin
in 2008 and 2009.

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Bitcoin aims to be pseudonymous, trustless, decentralized, and
immutable. In addition, anyone with a computer and internet
connection can join the Bitcoin network. Each computer is a node in
the Bitcoin network, and each node may verify and audit the
transaction history of their own funds. In Bitcoin, the minting and
distribution of bitcoins is determined through mining; since anyone
can mine and win bitcoins, this process also aims to be
decentralized.

Some of the challenges Bitcoin addresses are:

The difficulty to ensure every Bitcoin node holds a consistent


version of the transaction history

The difficulty to identify malicious actors

These conditions may normally allow a node to conduct a Double


Spend Attack, in which the one spends the same funds more than
once by tricking parts of the network to believe different versions of
the transaction history. However, Satoshi overcame this problem
using blockchain and Proof-of-Work.

Bitcoin is robust because it serves the same functions as a bank:

Account management; the Bitcoin protocol gives users a way to


create and manage their own identities (account)

Legitimacy; It ensures we are legitimate owners and accessors


of our accounts

Record-keeping; It honestly records account balances at each


transactions.

Unlike a bank, Bitcoin is decentralized and ensures a high degree of


privacy and trust.
Trust is built on the blockchain due to a high level of transparency:
blockchain is a publicly verifiable ledger, not owned by any entity,
and it prevents any single point of failure.

To maintain this trust, we need identity in Bitcoin for authentication


and assigning blame. Bitcoin uses public keys to send funds and
private keys to prove ownership of the public key and redeem the
sent funds. Each individual is responsible for creating and managing
their own private and public keys. Public keys are generated from
Private keys and are used to send/receive funds. Private keys are
randomly generated and used to prove ownership of the public key.
The chances of guessing the same private key are very low.

In addition to proof of ownership, in order to be considered valid,


transactions must also have enough available funds to spend from
and guarantee that no other transaction uses the same funds.
Bitcoin uses the Unspent Transaction Output (UTXO), in which users
spend directly from transactions made to them.

Instead of storing transactions individually, Bitcoin batches them


into “blocks,” built off of their previous blocks, thus forming the
tamper-evident, blockchain data structure.

Users on the blockchain must come to a consensus on which


updates and blocks to add to the blockchain. Doing so also prevents
Double Spend Attacks. Bitcoin uses a form of peer validation to
build a shared transaction history; everyone on the network casts
votes on the validity of a transaction. To prevent a Sybil Attack,
where users create multiple identities for malicious purposes,
Bitcoin employs Proof of Work, where voting power is based on
computational power, to make voting expensive.
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