Proc.

XXVIII International Scientific Conference Electronics - ET2019, September 12 - 14, 2019, Sozopol, Bulgaria

Bitcoin: Evolution of Blockchain Technology

Yavor Krumov Tomov
Department of Computer Systems, Faculty of Computer Systems and Technologies
Technical University of Sofia
8 Kliment Ohridski blvd., 1000 Sofia, Bulgaria
{yavor_tomov}@tu-sofia.bg

Abstract – In the past few years, blockchain thechnologies

have sparked a lot of interest in the scientific and businness Where function (1) – validates that x is an allowed value,
communities. The working Bitcoin blockchain has spawned a function (2) is a signing function, and function (3) is an
number of scientific research on the technology, security and encrypting function used to hide the value of x. The main
reliability of the model. It managed to generate a new kind of idea of the author is that the bank does not know the contents
economy with a market cap of around $ 300 billion at its peak. of the token when it signs it, hence the word blind. After that,
This article aims to elaborate on the development of the payer uses ܿ ᇱ (4) to get ‫ ݏ‬ᇱ ሺ‫ݔ‬ሻ which every receipient
blockchain technologies, to discuss the main problems, as well (payee) is able to validate through the use of ‫ݏ‬.
as to show various solutions.
ܿଵ ቀ‫ݏ‬ଵ ൫ܿሺ‫ݔ‬ሻ൯ቁ ൌ ‫ ݏ‬ᇱ ሺ‫ݔ‬ሻ (4)
Keywords—Blockchain, Bitcoin, peer-to- peer networks
I. INTRODUCTION The system is protected from external interference, but as a
drawback each transaction is fixed to a specific value (for
“Any sufficiently advanced technology is example, $ 1). D. Chaum can be considered one of the
indistinguishable from magic” founders of the idea of electronic payments, creating later
C. Clarck ECASH based on his algorithm. As is well seen in this
system, there is a third party (bank) responsible for the
Over the past few decades, the creation of a digital currency, validity of transactions, unlike blockchain technologies, and
similar to Fiat, has entertained the minds of a large number the Bitcoin eco system. The idea of blindly signing tokens is
of scholars. The creation of such currency involves that transactions between individual members of the system
addressing a number of challenges: currency regulation remain anonymous to the bank. Anonymity has become a
(third party or a decentralized system), the double spending main feature of most blockchain technologies.
problem, choosing a consensus model, and security concerns In 1997 (Back 2002) [6], Adam Black offers a solution to
such as Man-in-the-middle or Sibil attacks. the problem of email spam. His solution includes a protocol
In response to those problems, different authors have where the sending of email is related to solving a task,
proposed different solutions prior to 2008 when a person or varying in difficulty. The author defines three types of
a group of people going under the pseudonym Satoshi functions:
Nakamoto, published an article entitled Bitcoin: Peer-to-
Peer Electronic Cash System [2]. The author implements the ‫ ܥ‬՚ ‫ܮܣܪܥ‬ሺ‫ݏ‬ǡ ‫ݓ‬ሻ (5)
already familiar technologies in a revolutionary way,
achieving a working model. As a result, blockchain ܶ ՚ ‫ܶܰܫܯ‬ሺ‫ܥ‬ሻ (6)
technologies got a boost, cloud technologies [3], smart
contracts emerged [4], and most innovative companies are ܸ ՚ ܸ‫ܧܷܮܣ‬ሺܶሻ(7)
now developing blockchain projects. This, on the other
hand, has posed many new challenges from a legal and , where the CHAL function determines the complexity of the
regulatory standpoint. The rapid development of these task (respectively the workload required for the solution of
technologies, we believe, will change the world radically. the task w and an initial number s). The MINT function
returns H (s || x), which is a digest obtained by hashing the
STATE- OF-THE ART concatenation of the initial number s and the determined by
brute force number x. The VALUE function checks whether
In 1982, David Chaum [5] proposed an untraceable payment the resulting hash starts with a certain number of zeros,
system based on blind signatures. For this purpose, the which corresponds to the complexity of the task. The author
author uses cryptography as a basic tool by implementing calls this algorithm Proof of Work, which was later used in
three cryptographic functions. many blockchain models as well as Bitcoin in particular.
Cryptographic puzzles have been used in other related
‫ݎ‬ሺ‫ݔ‬ሻ (1)
articles such as defending against junk email [7] [8]. A
subsequent improvement was suggested independently by
‫ݏ‬൫‫ ݏ‬ᇱ ሺ‫ݔ‬ሻ൯ ൌ ‫ݔ‬ (2) Hal Finney [9], and Thomas Boschloo to find a collision
against a fixed output string [10] Every hashcash is different
ܿ൫ܿ ᇱ ሺ‫ݔ‬ሻ൯ ൌ ‫ݔ‬ (3) for the different participants and can be verified without the
978-1-7281-2574-9/19/$31.00 ©2019 IEEE

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intervention of a third party (bank or financial institution). The blocks are linked to each other in such a way that each
This feature makes hashcash decentralized. block contains the hash value of the previous block, forming
In 1998, W. Dai [11] proposed a distributed system (named a blockchain (similar to a linked list where the pointers are
b money) of participants where everyone can create money hash values). A similar idea, as we saw earlier, was also
and can carry out financial transactions to other network implemented by N.Szebo in Bit Gold, with the notable
members. Creating money is done by publishing a solution difference that instead of blocks, strings were used. This
to an unsolved computational problem. For the computation approach ensures that no transaction can be changed, added
of the solution, computer power is consumed and the money or deleted. One of the key moments is determining which
generated is proportional to that power. The author proposes participant gets to publish the next block. For all participants
that all participants are pseudo anonymous which is this is an important question because the publisher of the
achieved by using their public keys. Each participant has its next block gets the block reward. In the beginning, the
own copy of the database (wallet). The author, however, reward was 50 bitcoins, after that 25, and now it is 12.5
does not address the double spending problem, which is a bitcoins. The author implements the idea of Proof of Work
major problem in all kinds of electronic payments. There is as proposed by A. Back. All miners have to solve a task by
no clarity about making a decision by voting (Byzantine altering the content of a string called nonce. Using brute
generals problem [12]). force, they attempt to find the nonce which makes the block
Similar to W.Dai, N.Szebo independently propsed the Bit hash (hashed with sha256) begin with a set number of zeros
Gold model [13]. The author uses a peer-to-peer network as (8), where D represents a number determined by the number
well [14], implementing the PoW (Proof of Work) algorithm of zeros.
proposed by A.Back. In order for a hash to be considered
valid it must begin with a certain number of zeros. Once a ‫ܪ‬ሺ݊‫ ݁ܿ݊݋‬൅ ݂‫݁ݑ݈ܸܽ݀݊ݑ݋‬ሻ ൏ ‫ܦ‬ (8)
participant has found a valid hash, by using a benchmark
function and by adding a timestamp [15] he becomes its In addition, this approach protects the eco system from the
owner. Owners of such hashes are recorded in special server know Sibil attack, in which the attacker has the ability to
registers. An important feature in the proposed model is that create many participants, but their computing power has to
the last created string of bit gold provides the challenge bits compete with the rest of the network. There may be two
for the next-created string. This is an idea that was later participants simultaneously finding different solutions to the
applied to Bitcoin, with each subsequent block containing given task. In that case both of them will publish their
the hash of the previous one. blocks, which in turn will create a fork fig (2).
From a security point of view, Bit Gold was not perfect. It is
susceptible to Sybil attack. Also, it did not address the
Byzantine generals problem.
The author of this article is fully aware that the sources and
ideas that led to the creation of Bitcoin are much more
numerous, but the choice of authors and technologies
discussed in the article gives a good insight into the most
insightful and impactful ones. Their specific implementation
is going to be presented as well.

II. BITCOIN

Bitcoin is a decentralized peep-to-peer network created with Fig. 2. Fork in the blockchain
two main goals: to create a digital currency and to perform
financial transactions. Each participant in this network has
The fork is a prerequisite for a problem known as double
its own address that has the significance of a public key, as
spending. Here the author proposes an interesting solution,
well as its own copy of all transactions since the beginning
saying that the longest chain is the valid one. After a fork
of the network. All transactions are grouped into separate
has taken place, the miner who publishes the next block must
blocks. Each block contains header and block data. The
block header contains meta data: hash of the previous block, decide which of the two hashes to include in the header of
timestamp, nonce, block number fig (1). The block data the new block. With the block that he selects, one of the
consists of a list of valid transactions. branches will become longer. Thus, for every next block the
decision will be easier since one of the chains will already
be longer than the other. The later will be subsequently
removed. Any miner publishing a block is financially
incentivized to join the longest chain. That is so because if
he chooses the shorter one and it gets removed, he will not
receive any reward.
As mentioned above, security is key for the functioning of
such a system. Let us take a closer look at the consensus
model and what issues it solves. Each participant in the
network has their own copy of the blockchain as well as their
own pool of pending transactions. It is important to note that
Fig. 1. Bitcoin blockchain

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the order of pending transactions is different for each confirmations (three added blocks after the forked block) to
participant. The consensus model ensures that all ensure themselves that the transaction is valid. Transactions
participants have the same copy of the blockchain, or in in the block or blocks that are subsequently rejected are
other words, have a consensus on a single database. It should added to the next valid block.
be noted that each participant can be an honest participant or
an attacker. An attacker would try to change the history of The steps are presented in [2]:
the blockchain in order to double spend funds for personal 1) New transactions are broadcast to all nodes.
benefit. In order to make it more clear, let us take a look at 2) Each node collects new transactions into a block.
the following scenario. An attacker performs a transaction 3) Each node works on finding a difficult proof-of-work for
(payment to a third party) of any value. The miners will its block.
include that transaction in their local blocks. The miner who 4) When a node finds a proof-of-work, it broadcasts the
manages to solve the nonce puzzle first announces the block block to all nodes.
that includes the transaction (for example, block 1000). All 5) Nodes accept the block only if all transactions in it are
miners validate the block and the transaction in particular, valid and not already spent.
add the block to their local copy of the blockchain and 6) Nodes express their acceptance of the block by working
continue their work on the next block. After a certain amount on creating the next block in the chain, using the hash of the
of time (let us say 6 hours) the current block number will be accepted block as the previous hash.
1036, assuming that it takes 10 minutes on average to mine
one block on the bitcoin blockchain. At the same time, an As mentioned above, each transaction is located in the data
attacker publishes his own version of block 1036, by having of a block somewhere in the blockchain. There is a list of
first mined a valid parallel chain on his local machine transaction inputs (TxIN) and outputs (TxOUT). Each
starting from block 999 up to block 1036. However, he has TxOUT consists of two pieces of data such as an amount and
purposefully not included the transaction in question. After the recipient address. Only the owner of the private kay can
that, he manages to mine the next block and publishes block unlock the funds and send the funds to a new Bitcoin
1037, making his chain longer than the one of the honest address. A TxIn holds a reference to the previous output,
participants. Therefore, everyone has to accept his version and, a signature that proves that the funds in the previous
of the blockchain as their own. This scenario is possible only TxOut it references can be spent. Bitcoin uses Merkle tree
if the attacker owns more than 51% of the computational [22] hashing, whereby only the root of the hashing tree is
power of the network. As of today, this is nearly impossible taken in the overall hash, thus greatly optimizing the
to do on the Bitcoin network, whose net power is system's performance.
65000000Tx/s. But it is particularly important to emphasize During its nine-year development, Bitcoin has established
that this is a potential problem for new systems, which at itself as a leader in a kind of new economy where it
first have limited resources and would easily be exploited by dominates with 60% capitalization of the total capitalization
attackers. Another important question is the incentive of a of all the cryptocurrency. The main problem that exists with
participant to accept or reject a block. In a given network, if all these technologies is that over the years, the world has
most participants are honest and have accepted a given been using an energy-saving 72 TW / h energy that has no
block, every participant can only benefit from accepting that added value. The main task facing science is how this
block as it would allow them to compete for the block reward computing power can solve problems of great importance to
of the next block. From what has been said so far, it is clear society. The problem that has been hurried with the
that Bitcoin uses the longest chain rule as part of its recurrence of this type of assassin is related to the difficulty
consensus model in order to address the question of forking, in regulating the complexity of each task.
by resembling decision-making by voting. The majority, or
the biggest computing power, will be able to dictate the
decisions of the whole network, which is the basis of III. CONCLUSION
distributed systems. It should be said that consensus models
have been the subject of many authors [16][17]. This article discussed the ideas and technologies that have
There are Modified Algorithms based on PoW, for example had the greatest impact on the development of blockchain
[18], where the author offers to search for the longest chain technologies and, in particular, Bitcoin.
of prime numbers under any requirement. Other types of Principal problems and solutions of various authors in the
consensus algorithms are based on Proof of Stake (PoS) [19] evolutionary development of Bitcoin were presented, as the
[20] of the next block is directly related to the resources most prominent representative of blockchain technology
invested by each participant. The probability that a in the sphere of electronic payments. Historical links were
participant will post next block is proportional to its drawn between the various authors which is illustrated by
resources attributed to the total resources of the network. the evolutionary graph of Bitcoin fig3.
Also proposed are algorithms that combine both PoW and
PoS methods [21]. Interestingly, there is no scientific proof
that the model works, but the participants make it work for
purely financial reasons. Nowadays, this is one of the few
cases where experience overtakes science. If a given
participant attempts to spend the same currency twice,
performing two separate transactions in the two new blocks,
each of the two recipients must wait for at least three

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