Questions and Answers
What is the primary benefit for a greedy attacker to play by the rules rather than undermining the system?
Why can spent transactions be discarded to save disk space?
What does the block header primarily contain aside from the block hash?
How does the system manage the problem of storage with increasing block headers?
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What size is approximately expected for a block header with no transactions?
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What is one effect of Moore's Law in relation to computer memory storage?
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What happens to the interior hashes of a Merkle Tree during the process of pruning?
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How much data would a block generate in a year if created every 10 minutes?
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What is a key feature of the proposed peer-to-peer electronic cash system?
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How does the proposed system prevent double-spending?
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What does the longest chain in the proposed system represent?
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What is the significance of CPU power in the proposed solution?
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What is a major drawback of relying on financial institutions for online payments?
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What implies that nodes can leave and rejoin the network at will?
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What mechanism is used to timestamp transactions in the proposed system?
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What type of model does the existing electronic payment system rely on?
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What is the primary requirement for simplified payment verification?
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What does the Merkle branch help a user do in simplified payment verification?
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What makes simplified payment verification more vulnerable?
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How can users protect themselves against invalid blocks in simplified payment verification?
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What may businesses that frequently receive payments prefer to do regarding node verification?
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What aspect of the longest proof-of-work chain does a user keep track of in simplified payment verification?
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What is a potential weakness of simplified payment verification?
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Which of the following is NOT true about simplified payment verification?
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What is the purpose of the recipient generating a new key pair before signing?
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What does the receiver wait for before considering the transaction secure?
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What does the Poisson distribution expected value represent in this context?
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What does multiplying the Poisson density by catch-up probability help determine?
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What indicates that the receiver has been alerted to a fraudulent transaction attempt?
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Why is it significant that the dishonest sender works on a parallel chain?
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What is the impact of realizing that the attacker's progress follows a Poisson distribution?
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What mathematical relationship does the summation in the Poisson density indicate?
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What do transactions typically consist of in the context of handling value?
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How does the public nature of transactions affect privacy in a new privacy model?
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What is the purpose of using a new key pair for each transaction?
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What does fan-out refer to in the context of transactions?
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What is a significant similarity between traditional privacy models and new privacy models?
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Which component is essential for achieving privacy in the new privacy model?
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What is the primary purpose of having multiple inputs in a transaction?
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What is one inefficiency that is reduced by combining and splitting value in transactions?
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Study Notes
Overview of Bitcoin
- Bitcoin is a peer-to-peer electronic cash system enabling direct online payments without financial institutions.
- Digital signatures are implemented to enhance security and prevent double-spending; however, trust in third parties can undermine these benefits.
Blockchain and Proof-of-Work
- Transactions are timestamped and linked in a blockchain structure through a hash-based proof-of-work system.
- The longest chain of blocks confirms both the sequence of transactions and the economic majority of processing power backing the network.
- Nodes provide minimal structure; they can join or leave freely while adhering to the longest proof-of-work chain.
Limitations of Traditional Payment Systems
- Traditional online commerce relies on financial institutions as mediators, which creates points of failure and potential for disputes.
- Non-reversible transactions are limited by the need for these institutions to resolve conflicts, reducing the system's reliability.
Disk Space Management
- To reclaim disk space, old transactions can be discarded as they become buried under new blocks, facilitated by using Merkle Trees for transaction hashing.
- Compact storage is achievable without compromising data integrity, essential for Bitcoin’s scalability.
Simplified Payment Verification
- Users can verify payments without a full network node by maintaining copies of block headers from the longest proof-of-work chain.
- While this process is primarily reliable, it is vulnerable if an attacker controls significant network resources.
Transaction Structure
- Transactions can have multiple inputs and outputs, allowing flexibility in value handling to efficiently manage coins.
- Transactions typically involve a single large input or combine smaller inputs, with provisions for change returned to the sender.
Privacy Mechanism
- Bitcoin promotes privacy by letting public keys remain anonymous while allowing public transaction visibility.
- Each transaction should utilize a unique key pair to minimize traceability and association among multiple transactions.
Security and Attack Mitigation
- Recipients should wait for a specific number of confirmations (blocks linked after a transaction) to ensure the sender cannot reverse the transaction.
- The likelihood of an attack depends on the difference in computational progress between the honest chain and the attacker's parallel chain.
Probability Calculations in Security
- The recipient's confidence in transaction validity is modelled using Poisson distribution, taking into account expected block times and potential attacker progress.
- Formulas are presented to estimate the risk of an attacker catching up based on varying transaction confirmations.
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Description
Explore the fundamentals of Bitcoin, including its peer-to-peer electronic cash system, the blockchain technology that underpins it, and the limitations of traditional payment systems. This quiz will test your understanding of how Bitcoin operates and its security features.