Bitcoin is cryptocurrency, the laws of transferring of which are controlled by an open source cryptographic protocol.

In other words, Bitcoins are a form of digital money which has no centralized controlling unit, i.e. no one country or organization has complete control over the evaluation, transfer or trade of bitcoins

Current BTC rate: $689 As of 11/19/2013

WHAT IS BITCOIN?

Bitcoin simplified

 Once you have installed a Bitcoin wallet on your computer or mobile phone, it will generate your first Bitcoin address. This bitcoin address is then used to carry out transactions. Bitcoins are transferred from one bitcoin address to the other, ie from the buyers digital wallet to the sellers over the network.

How it works

 Address: A Bitcoin address is similar to a physical address or an email. It is the only information you need to provide for someone to pay you with Bitcoin. An important difference, however, is that each address should only be used for a single transaction.

Block: A block is a record in the block chain that contains and confirms many waiting transactions. Roughly every 10 minutes, on average, a new block including transactions is appended to the block chain through mining. Block Chain: The block chain is a public record of Bitcoin transactions in chronological order. The block chain is shared between all Bitcoin users. It is used to verify the permanence of Bitcoin transactions and to prevent double spending.

Bitcoin Vocabulary

 Mining: Bitcoin mining is the process of making computer hardware do mathematical calculations for the Bitcoin network to confirm transactions and increase security. Private Key: A private key is a secret piece of data that proves your right to spend Bitcoins from a specific wallet through a cryptographic signature.

Signature: A cryptographic signature is a mathematical mechanism that allows someone to prove ownership.

Bitcoin Vocabulary contd

 Wallet Vulnerability. The wallets are stored without any encryption and hence are prime targets for thieves Traceability Tracing a Coins history and hence defeating the purpose of Bitcoin use rs being anonymous.

Lack of governance No arbitrator in case of disputes in transactions.

Issues

 Lack of security Malicious nodes affecting the whole network, thus effectively taking into control the entire network. Since all of the transactions are done via the Intern et, Packet Sniffing is a major security issue.

Denial Of Service An attacker can send numerous packets to a particular node an d clog up the whole

Issues

 How is it vulnerable? Lack of private key encryption.

If a clients wallet is compromised a simple change in password does not guarantee the security of the wallet, as the wallets can still be accessed using the old password via an existing backup facility. Hence the wallet, with the new passwords, can still be drained of all its Bitcoins using the old password to gain access. Bitcoin wallets are stored in your physical storage of your computer/smartphone. If your device is compromised so is your BTC Wallet.

Wallet Vulnerability

 Wallets are secured using a private key, hence if a user suspects that his private key has been compromised he can opt to encrypt his private key and hence securing it from any further attacks. A solution that is suggested to tackle the issue of wallet vulnerability even after changing the password is to make a completely new wallet with every change in password. Hence all the Bitcoins from the previous wallet would then be transferred into the new wallet and even if an attacker has access to the old wallet he would find no Bitcoins in it.

Solutions

 Whom do I go to incase of a dispute? The problem with Bitcoin is, it is based on a trust model. The payments are irreversible. For example, in case a fraud occurs on your Credit Card, you are protected by your Bank and have no liability for those charges. But in the case of bitcoins, once trasnferred, they cannot be reverted and there is little you can do about it.

Lack of Governance?

 A way to tackle this is by the use of anonymous arbitrators. Clients are given the option of using an arbitrator and if they choose to use one, a minimal charge is levied on them which pays the arbitrator. The anonymity of both the clients and the arbitrator is maintained. Also, the arbitrators can be paid as miners, ie with new Bitcoins.

Solutions

 Are they really anonymous? Bitcoins are only ever really anonymous if you mine them yourself. If ever you trade them on a public exchange they are forever affiliated with your wallet in the traders logs. With the right amount of efforts, they can be traced back to your wallet. Anonymity is the most marketed advantage of BitCoins but in reality it isnt so anonymous after all. It is because of this issue that people are scouting and willing to pay extra for new Bitcoins.

Traceability

 The only way around this issue is to make transactions through multiple loops. Tracking a bitcoin is a painstaking and long process, hence making transactions through multiple loops can effectively preserve the anonymity of the client.

Solutions

 How secure is Bitcoin? If Bitcoin transactions are done via IP address as opposed to a Bitcoin wallet address, any man-in-middle attack can be easily executed and hence the Bitcoins are exposed to theft If a client is using a public /unsecure internet connection, where packet sniffing is dominant, attackers can easily track your activity and obtain your private key.

Lack of Security

 The new bitcoin exchange sites have hence disabled the option of trasactions through IP addresses. To tackle the issue of packet sniffing, the nodes used during a transaction are now being encrypted, hence securing the nodes from an attack.

Solutions

 Certain expert miners can exploit the P2P network protocols and form a coalition with other miners and create a monopoly in the market and accumulate Bitcoins. Mining basically uses a lot of processing power and hence consumes a lot of electricity. The increasing cost of energy will drive up the cost of Bitcoins.

Other issues

 Certain expert miners can exploit the P2P network protocols and form a coalition with other miners and create a monopoly in the market and accumulate Bitcoins. Mining basically uses a lot of processing power and hence consumes a lot of electricity. The increasing cost of energy will drive up the cost of Bitcoins. The amount of energy used for releasing 1 block of Bitcoins can power approximately 36000 average American homes.

Other issues

Homemade RIGS

 A solution to guard against the selfish mining of bitcoins is to select the blockchain to be solved in a random manner, as opposed to the existing method in which the longer one is selected. This will prevent the miners from taking undue advantage and collaborate among themselves.

Solutions

 Official bitcoins site: http://bitcoin.org

Original paper by Satoshi Nakamoto: http://bitcoin.org/bitcoin.pdf

http://bitcoin.org/en/alert/2013-08-11-android http://bitcoin.stackexchange.com/questions/12907/arebitcoin-transactions-traceable/12929#12929

Bibliography

 http://threatpost.com/attackers-lift-1-2m-from-bitcoinwallet-service http://bitcoin.org/en/secure-your-wallet https://en.bitcoin.it/wiki/Weaknesses http://blog.nyaruka.com/bitcoins-biggest-problem-dens-ofthieves http://p2pfoundation.net/Bitcoin#Technological_Issues