There’s a lot of excitement about Bitcoin and cryptocurrencies. Optimists claim that Bitcoin willfundamentally alter payments, economics, and even politics around the world. Pessimists claimBitcoin is inherently broken and will suffer an inevitable and spectacular collapse.Underlying these differing views is significant confusion about what Bitcoin is and how it works. Wewrote this book to help cut through the hype and get to the core of what makes Bitcoin unique.To really understand what is special about Bitcoin, we need to understand how it works at a technicallevel. Bitcoin truly is a new technology and we can only get so far by explaining it through simpleanalogies to past technologies.We’ll assume that you have a basic understanding of computer science — how computers work, datastructures and algorithms, and some programming experience. If you’re an undergraduate orgraduate student of computer science, a software developer, an entrepreneur, or a technologyhobbyist, this textbook is for you.In this book we’ll address the important questions about Bitcoin. How does Bitcoin work? Whatmakes it different? How secure are your bitcoins? How anonymous are Bitcoin users? Whatapplications can we build using Bitcoin as a platform? Can cryptocurrencies be regulated? If we weredesigning a new cryptocurrency today, what would we change? What might the future hold?Each chapter has a series of homework questions to help you understand these questions at a deeperlevel. In addition, there is a series of programming assignments in which you’ll implement variouscomponents of Bitcoin in simplified models. If you’re an auditory learner, most of the material of thisbook is also available as a series of video lectures. You can find all these on our Coursera course. Youshould also supplement your learning with information you can find online including the Bitcoin wiki,forums, and research papers, and by interacting with your peers and the Bitcoin community.After reading this book, you’ll know everything you need to be able to separate fact from fiction whenreading claims about Bitcoin and other cryptocurrencies. You’ll have the conceptual foundations youneed to engineer secure software that interacts with the Bitcoin network. And you’ll be able tointegrate ideas from Bitcoin into your own projects.
It's not clear whether a forking attack would actually succeed in practice. Attacks and the exchange rate. crash the Bitcoin exchange rate. If a miner carried out such an attack, confidence in the system would decline and the exchange rate would fall as people seek to move their wealth out of the system. Thus, while an attacker with 51% of the hashing power might profit in the short term from doublespending, they might seriously undermine their longterm earning potential to just mine honestly and cash in their mining rewards. More importantly, its likely that such an attack would completely
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For these reasons, perhaps a more plausible motivation for a forking attack is to specifically destroy the currency by a dramatic loss of confidence. This has been referred to as a G after the Bond villain that tried to irradiate all the gold in Fort Knox to make it valueless. A Goldfinger attackers goal might be to destroy the currency, possibly to profit either by having shorted Bitcoin or by having significant holdings in some competing currency. oldfinger attack Forking attack via bribery. appears to be an expensive and difficult task. But its possible that there is an easier way to launch a forking attack. Whereas it would be really expensive to directly buy enough mining capacity to have more than everybody else in the world, it might be possible to bribe the people who do control all that capacity to work on your behalf. Buying enough hardware to control the majority of the hash power
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There are a few ways that you could bribe miners. One way is to do this out of band perhaps locate some large miners and hand them an envelope of cash for working on your fork. A more clever technique is to create a new mining pool and run it at a loss, offering greater incentives than other pools. Even though the incentives might not be sustainable, an attacker could keep them going for long enough to successfully launch a forking attack and perhaps profit. A third technique is to leave big tips in blocks on the forking chain big enough to cause miners to leave the longest chain and work on the forking chain in hopes that it will become the longest chain and they can collect the tips. Whatever the mechanics of the bribing are, the idea is the same: instead of actually acquiring all the mining capacity directly, the attacker just pays those who already have it to help their fork overcome the longest chain.
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Perhaps miners wont want to help because to do so would hurt the currency in which they have invested so much money and mining equipment. On the other hand, while miners as a group might want to keep the currency solvent, they dont act collectively. Individual miners might defect and accept a bribe if they thought they could make more money in the short term. This would be a classic tragedy of the commons from an economic perspective. None of this has actually happened and it's an open question if a bribery attack like this could actually be viable. 161 Temporary blockwithholding attacks. Say that you just found a block. The default behavior is to immediately announce it to the network, but if youre carrying out a temporary blockwithholding attack, you dont announce it right away. Instead you try to get ahead by doing some more mining on top of this block in hopes of finding two blocks in a row before the rest of network finds even one, keeping your blocks secret the whole time.
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