Bitcoin Security and Validation

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Questions and Answers

What is the main advantage of a greedy attacker playing by the rules in a cryptocurrency system?

To reduce the overall security of the system

To generate new coins and increase his wealth (correct)

To undermine the system and the validity of his own wealth

To defraud people by stealing back his payments

What is the purpose of hashing transactions in a Merkle Tree?

To facilitate discarding spent transactions without breaking the block's hash (correct)

To increase the block size

To reduce the block's hash

To slow down the transaction verification process

What is the estimated size of a block header with no transactions?

80 bytes (correct)

320 bytes

40 bytes

160 bytes

How often are blocks generated, according to the content?

Every 10 minutes Signup and view all the answers

What is the predicted growth of computer system RAM according to Moore's Law?

1.2GB per year Signup and view all the answers

What is the main problem that storage poses in a cryptocurrency system?

Storage is not a problem due to Moore's Law Signup and view all the answers

How much disk space would be required per year if blocks are generated every 10 minutes?

4.2MB per year Signup and view all the answers

What is the purpose of compacting old blocks in a cryptocurrency system?

To reduce disk space usage Signup and view all the answers

Why are transactions designed to have multiple inputs and outputs?

To allow value to be split and combined Signup and view all the answers

What is a potential issue with fan-out in transactions?

It is not a problem in this system Signup and view all the answers

How is privacy maintained in the new model?

By keeping public keys anonymous Signup and view all the answers

What is similar to the level of information released by stock exchanges?

The time and size of individual trades Signup and view all the answers

What is the purpose of using a new key pair for each transaction?

To keep them from being linked to a common owner Signup and view all the answers

What is typically the maximum number of outputs in a transaction?

Two Signup and view all the answers

How does the new privacy model achieve privacy?

By keeping public keys anonymous Signup and view all the answers

What is the main difference between the traditional privacy model and the new privacy model?

The use of trusted third parties Signup and view all the answers

What is a major limitation of the current electronic payment system?

It relies on trusted third parties Signup and view all the answers

What is the main problem that digital signatures do not solve?

Double-spending Signup and view all the answers

What is the purpose of the hash-based proof-of-work?

To timestamp transactions Signup and view all the answers

What is the longest chain proof of?

The sequence of events witnessed Signup and view all the answers

What is required to change the record of transactions?

Redoing the proof-of-work Signup and view all the answers

Why can nodes leave and rejoin the network?

Because the network requires minimal structure Signup and view all the answers

What is the purpose of broadcasting messages on a best effort basis?

To allow nodes to communicate with each other Signup and view all the answers

What is the main benefit of a peer-to-peer electronic cash system?

It allows for completely non-reversible transactions Signup and view all the answers

What is the main limitation of mediated transactions?

The minimum practical transaction size Signup and view all the answers

What is the primary benefit of using physical currency in transactions?

It avoids payment uncertainties Signup and view all the answers

What is the proposed solution to the double-spending problem?

A peer-to-peer distributed timestamp server Signup and view all the answers

What is an electronic coin defined as?

A chain of digital signatures Signup and view all the answers

What is the purpose of digitally signing a hash of the previous transaction?

To verify the chain of ownership Signup and view all the answers

What is the security requirement for the proposed system?

Honest nodes must control more CPU power than attacker nodes Signup and view all the answers

What is a potential drawback of mediated transactions?

The need for a trusted party Signup and view all the answers

What is the benefit of using cryptographic proof instead of trust?

It allows any two willing parties to transact directly Signup and view all the answers

What do nodes consider as the correct chain?

The longest chain Signup and view all the answers

What happens when two nodes broadcast different versions of the next block simultaneously?

Some nodes may receive one or the other first and work on that one Signup and view all the answers

Why do nodes have an incentive to support the network?

Because they get a reward in the form of new coins Signup and view all the answers

What happens if a node does not receive a block?

It will request the block when it receives the next block and realizes it missed one Signup and view all the answers

What is added to the incentive value of the block containing a transaction?

The difference between the input and output values of the transaction Signup and view all the answers

What is the incentive for nodes to support the network initially?

The creation of a new coin Signup and view all the answers

What is the goal of the incentive mechanism?

To encourage nodes to stay honest Signup and view all the answers

What is the predicted outcome of the incentive mechanism once a predetermined number of coins have entered circulation?

The incentive will transition entirely to transaction fees and be completely inflation-free Signup and view all the answers

Study Notes

Blockchain and Security

A greedy attacker would need to choose between defrauding people or generating new coins, making it more profitable to play by the rules.
Honest nodes collectively controlling more CPU power than any cooperating group of attacker nodes ensures the system's security.

Reclaiming Disk Space

Transactions can be discarded to save disk space once the latest transaction in a coin is buried under enough blocks.
Merkle Trees are used to hash transactions, allowing old blocks to be compacted without breaking the block's hash.

Block Structure

A block header with no transactions would be approximately 80 bytes.
The block header contains the previous hash and nonce.
The root hash of the Merkle Tree is included in the block's hash.

Transaction Processing

Transactions can contain multiple inputs and outputs to allow value to be split and combined.
Normally, there will be one input from a larger previous transaction or multiple inputs combining smaller amounts, and at most two outputs: one for the payment and one returning the change.

Privacy

Privacy can be maintained by keeping public keys anonymous and using a new key pair for each transaction.
The level of information released is similar to that of stock exchanges, where the time and size of individual trades are made public, but without identifying the parties involved.

Digital Signatures and Coin Ownership

An electronic coin is defined as a chain of digital signatures.
Each owner transfers the coin to the next by digitally signing a hash of the previous transaction and the public key of the next owner.

Network and Node Operation

Nodes express their acceptance of a block by working on creating the next block in the chain.
Nodes always consider the longest chain to be the correct one and will keep working on extending it.
New transaction broadcasts do not need to reach all nodes, as long as they reach many nodes, they will get into a block eventually.

Incentive and Reward

The first transaction in a block is a special transaction that starts a new coin owned by the creator of the block.
This adds an incentive for nodes to support the network and provides a way to initially distribute coins into circulation.
The incentive can also be funded with transaction fees, and eventually transition to being completely inflation-free.

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Description

This quiz covers the security aspects of Bitcoin, including the incentives for honest behavior and the process of reclaiming disk space in the blockchain.