Create account

replied 1974d
| long. Block broadcasts are also tolerant of dropped
messages. If a node does not receive a block, it will request it when it receives the next block and
realizes it missed one.

**6.
1 / 66
replied 1974d
| Incentive**
By convention, 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
replied 1974d
| support the network, and provides
a way to initially distribute coins into circulation, since there is no central authority to issue them.
The steady addition of a constant of amount
replied 1974d
| of new coins is analogous to gold miners expending
resources to add gold to circulation. In our case, it is CPU time and electricity that is expended.

The incentive can also be
replied 1974d
| funded with transaction fees. If the output value of a transaction is
less than its input value, the difference is a transaction fee that is added to the incentive value of
the block
replied 1974d
| containing the transaction. Once a predetermined number of coins have entered
circulation, the incentive can transition entirely to transaction fees and be completely inflation
free.
replied 1974d
|

The incentive may help encourage nodes to stay honest. If a greedy attacker is able to
assemble more CPU power than all the honest nodes, he would have to choose between using it
to
replied 1974d
| defraud people by stealing back his payments, or using it to generate new coins. He ought to
find it more profitable to play by the rules, such rules that favour him with more new
replied 1974d
| coins than
everyone else combined, than to undermine the system and the validity of his own wealth.

**7. Reclaiming Disk Space**
Once the latest transaction in a coin is buried
replied 1974d
| under enough blocks, the spent transactions before
it can be discarded to save disk space. To facilitate this without breaking the block's hash,
transactions are hashed in a Merkle
replied 1974d
| Tree [7][2][5], with only the root included in the block's hash.
Old blocks can then be compacted by stubbing off branches of the tree. The interior hashes do
not need to be
replied 1974d
| stored.

![](

A block header with no transactions would be about 80 bytes. If we suppose blocks are
generated every 10 minutes, 80 bytes * 6 * 24 *
replied 1974d
| 365 = 4.2MB per year. With computer systems
typically selling with 2GB of RAM as of 2008, and Moore's Law predicting current growth of
1.2GB per year, storage should not be a problem
replied 1974d
| even if the block headers must be kept in
memory.

**8. Simplified Payment Verification**
It is possible to verify payments without running a full network node. A user only needs to
replied 1974d
| keep
a copy of the block headers of the longest proof-of-work chain, which he can get by querying
network nodes until he's convinced he has the longest chain, and obtain the Merkle
replied 1974d
| branch
linking the transaction to the block it's timestamped in. He can't check the transaction for
himself, but by linking it to a place in the chain, he can see that a network node
replied 1974d
| has accepted it,
and blocks added after it further confirm the network has accepted it.

![](

As such, the verification is reliable as long as honest
replied 1974d
| nodes control the network, but is more
vulnerable if the network is overpowered by an attacker. While network nodes can verify
transactions for themselves, the simplified method can
replied 1974d
| be fooled by an attacker's fabricated
transactions for as long as the attacker can continue to overpower the network. One strategy to
protect against this would be to accept alerts
replied 1974d
| from network nodes when they detect an invalid
block, prompting the user's software to download the full block and alerted transactions to
confirm the inconsistency. Businesses that
replied 1974d
| receive frequent payments will probably still want to
run their own nodes for more independent security and quicker verification.

**9. Combining and Splitting Value**
Although it
replied 1974d
| would be possible to handle coins individually, it would be unwieldy to make a
separate transaction for every cent in a transfer. To allow value to be split and combined,
transaction
replied 1974d
|s contain multiple inputs and outputs. Normally there will be either a single input
from a larger previous transaction or multiple inputs combining smaller amounts, and at most
replied 1974d
| two
outputs: one for the payment, and one returning the change, if any, back to the sender.

![](

It should be noted that fan-out, where a transactio
replied 1974d
|n depends on several transactions, and those
transactions depend on many more, is not a problem here. There is never the need to extract a
complete standalone copy of a transaction's
replied 1974d
| history.

**10. Privacy**
The traditional banking model achieves a level of privacy by limiting access to information to the
parties involved and the trusted third party. The
replied 1974d
| necessity to announce all transactions publicly
precludes this method, but privacy can still be maintained by breaking the flow of information in
another place: by keeping public
replied 1974d
| keys anonymous. The public can see that someone is sending
an amount to someone else, but without information linking the transaction to anyone. This is
similar to the level of
replied 1974d
| information released by stock exchanges, where the time and size of
individual trades, the "tape", is made public, but without telling who the parties were.

![](
replied 1974d
|mzPk5Dy.png)

As an additional firewall, a new key pair should be used for each transaction to keep them
from being linked to a common owner. Some linking is still unavoidable with
replied 1974d
| multi-input
transactions, which necessarily reveal that their inputs were owned by the same owner. The risk
is that if the owner of a key is revealed, linking could reveal other
replied 1974d
| transactions that belonged to
the same owner.

**11. Calculations**
We consider the scenario of an attacker trying to generate an alternate chain faster than the honest chain. Even
replied 1974d
| if this is accomplished, it does not throw the system open to arbitrary changes, such
as creating value out of thin air or taking money that never belonged to the attacker. Nodes
replied 1974d
| are
not going to accept an invalid transaction as payment, and honest nodes will never accept a block
containing them. An attacker can only try to change one of his own transactions
replied 1974d
| to take back
money he recently spent.

The race between the honest chain and an attacker chain can be characterized as a Binomial
Random Walk. The success event is the honest chain
replied 1974d
| being extended by one block, increasing its
lead by +1, and the failure event is the attacker's chain being extended by one block, reducing the
gap by -1.

The probability of an
replied 1974d
| attacker catching up from a given deficit is analogous to a Gambler's
Ruin problem. Suppose a gambler with unlimited credit starts at a deficit and plays potentially an
infinite
replied 1974d
| number of trials to try to reach breakeven. We can calculate the probability he ever
reaches breakeven, or that an attacker ever catches up with the honest chain, as follows
replied 1974d
| [8]:

![](

Given our assumption that p > q, the probability drops exponentially as the number of blocks the
attacker has to catch up with increases.
replied 1974d
| With the odds against him, if he doesn't make a lucky
lunge forward early on, his chances become vanishingly small as he falls further behind.

We now consider how long the recipient
replied 1974d
| of a new transaction needs to wait before being
sufficiently certain the sender can't change the transaction. We assume the sender is an attacker
who wants to make the recipient
replied 1974d
| believe he paid him for a while, then switch it to pay back to
himself after some time has passed. The receiver will be alerted when that happens, but the
sender hopes it will be too
replied 1974d
| late.

The receiver generates a new key pair and gives the public key to the sender shortly before
signing. This prevents the sender from preparing a chain of blocks ahead of time by
replied 1974d
| working on
it continuously until he is lucky enough to get far enough ahead, then executing the transaction at
that moment. Once the transaction is sent, the dishonest sender starts
replied 1974d
| working in secret on a
parallel chain containing an alternate version of his transaction.

The recipient waits until the transaction has been added to a block and z blocks have
replied 1974d
| been
linked after it. He doesn't know the exact amount of progress the attacker has made, but
assuming the honest blocks took the average expected time per block, the attacker's
replied 1974d
| potential
progress will be a Poisson distribution with expected value:

![](

To get the probability the attacker could still catch up now, we
replied 1974d
| multiply the Poisson density for
each amount of progress he could have made by the probability he could catch up from that point:

![](

Rearranging
replied 1974d
| to avoid summing the infinite tail of the distribution...

![](

Converting to C code...

```
#include <math.h>
double AttackerSuccessProbability(doub
replied 1974d
|le q, int z)
{
double p = 1.0 - q;
double lambda = z * (q / p);
double sum = 1.0;
int i, k;
for (k = 0; k <= z; k++)
{
double poisson = exp(-lambda);
for (i = 1; i <= k; i++)
replied 1974d
| poisson *= lambda / i;
sum -= poisson * (1 - pow(q / p, z - k));
}
return sum;
}
```

Running some results, we can see the probability drop off exponentially with z.

```
q=0.1
z=
replied 1974d
|0 P=1.0000000
z=1 P=0.2045873
z=2 P=0.0509779
z=3 P=0.0131722
z=4 P=0.0034552
z=5 P=0.0009137
z=6 P=0.0002428
z=7 P=0.0000647
z=8 P=0.0000173
z=9 P=0.0000046
z=10 P=0.0000012
q=0.3
z=
1
1
replied 1974d
|0 P=1.0000000
z=5 P=0.1773523
z=10 P=0.0416605
z=15 P=0.0101008
z=20 P=0.0024804
z=25 P=0.0006132
z=30 P=0.0001522
z=35 P=0.0000379
z=40 P=0.0000095
z=45 P=0.0000024
z=50 P=0.0000006
1
1
replied 1974d
|```

Solving for P less than 0.1%...

```
P < 0.001
q=0.10 z=5
q=0.15 z=8
q=0.20 z=11
q=0.25 z=15
q=0.30 z=24
q=0.35 z=41
q=0.40 z=89
q=0.45 z=340
```

**12. Conclusion**
We have
2
2
replied 1974d
| proposed a system for electronic transactions without relying on trust. We started with
the usual framework of coins made from digital signatures, which provides strong control
3
2
replied 1974d
| of
ownership, but is incomplete without a way to prevent double-spending. To solve this, we
proposed a peer-to-peer network using proof-of-work to record a public history of
1
1
replied 1974d
| transactions
that quickly becomes computationally impractical for an attacker to change if honest nodes
control a majority of CPU power. The network is robust in its unstructured
1
1
replied 1974d
| simplicity. Nodes
work all at once with little coordination. They do not need to be identified, since messages are
not routed to any particular place and only need to be delivered on
1
replied 1974d
| a best effort basis. Nodes can
leave and rejoin the network at will, accepting the proof-of-work chain as proof of what
happened while they were gone. They vote with their CPU power,
1
1
replied 1974d
| expressing their acceptance of
valid blocks by working on extending them and rejecting invalid blocks by refusing to work on
them. Any needed rules and incentives can be enforced
1
1
replied 1974d
| with this consensus mechanism.

**References**
[1] W. Dai, "b-money," http://www.weidai.com/bmoney.txt, 1998.
[2] H. Massias, X.S. Avila, and J.-J. Quisquater, "Design of a secure
1
1
replied 1974d
| timestamping service with minimal
trust requirements," In 20th Symposium on Information Theory in the Benelux, May 1999.
[3] S. Haber, W.S. Stornetta, "How to time-stamp a digital
1
1
replied 1974d
| document," In Journal of Cryptology, vol 3, no
2, pages 99-111, 1991.
[4] D. Bayer, S. Haber, W.S. Stornetta, "Improving the efficiency and reliability of digital time-stamping,"
In
2
1
replied 1974d
| Sequences II: Methods in Communication, Security and Computer Science, pages 329-334, 1993.
[5] S. Haber, W.S. Stornetta, "Secure names for bit-strings," In Proceedings of the 4th
replied 1974d
| ACM Conference
on Computer and Communications Security, pages 28-35, April 1997.
[6] A. Back, "Hashcash - a denial of service counter-measure,"
http://www.hashcash.org/papers/hashcas
1
1
replied 1974d
|h.pdf, 2002.
[7] R.C. Merkle, "Protocols for public key cryptosystems," In Proc. 1980 Symposium on Security and
Privacy, IEEE Computer Society, pages 122-133, April 1980.
[8] W.
1
replied 1974d
| Feller, "An introduction to probability theory and its applications," 1957.
1
1


About Privacy Terms Stats