Monday, November 20, 2017

Entry 5 - Bitcoin Mining Behind the Scenes


Image result for bitcoin mining warehouse
A bitcoin mining warehouse in Sweden (10)
Bitcoin mining is the backbone of how the cryptocurrency functions (See Bitcoin Mining: Free Money?). The currency needs incredible computing power in order to complete transactions and keep the system secure. Because Bitcoin is unregulated, this computing power comes from outside sources. As Bitcoin continues to grow, mining has turned into a giant industry. The Bitcoin currency is constantly in the news, but what does the mining behind the scenes actually look like?
Bitcoin mining may be overshadowed by the currency itself, but it is a $3-4 billion dollar industry (1). One mining company was reportedly bringing in $8 million a month from mining alone (2). This certainly does not come easy. There are nearly 350,000 Bitcoin transactions per day, which requires a lot of computing power (3). Bitcoin miners use 1,005.59 megawatt hours of electricity per day with electrical costs of $150,000 per day (4). Mining for the top two cryptocurrencies combined, Bitcoin and Ethereum, uses more electricity than the entire country of Iceland (5). So can someone mine on their computer at home?
In theory, anyone with a computer and the right software can mine. However, as the currency grows, it has become impossible to mine on an individual computer. Mining is dominated by large companies with high-tech software, the largest of these being AntPool, which dominates 16.8% of the blockchain (3). There are about fifteen companies that make up the majority of the mining community, and 60% of the mining capacity comes from China (7). Bitcoin mining today is done in giant warehouses with rows and rows of mining hardware. One company for example has 3,000 ASIC (Application-Specific Integrated Circuit) miners--the dominant technology of the day--in a remote warehouse in China that run nonstop everyday of the year (6). There is also the constant sound of fans cooling the hardware--one mining warehouse was equipped with 30 tons of air conditioning (2). So, when people read the headlines about Bitcoin prices or make a Bitcoin payment, what they do not see is the effort, investment, and computing power that go into processing each block.
From a computer science standpoint, creating better and more efficient mining machines is what will propel the industry forward. The industry began with computer CPU mining, which has become obsolete with newer options. The next development was the use of graphical processing units (GCU) for mining that can mine 80 times faster than a traditional CPU (8). Even those, however, are elementary according to today’s standards. The next improvement in mining capability was the Field Programmable Gate Array (FPGA), which improved efficiency and was the beginning of the large mining farm industry (9). Today, the norm are ASIC chips, which have one capability: to mine bitcoins, and cannot be used for anything else. These chips are 100 times faster than any previous technology while also consuming less power (9). These chips are what line the aisles in the warehouses of giant mining companies. Updates in ASIC are the future of Bitcoin mining. There are currently pushes to produce chips that are smaller (smaller than a fingertip), which would make them more efficient. The research and development on quantum computing could affect Bitcoin in the future as well, bringing computational power to dangerous levels for Bitcoin security. Bitcoin has exploded recently and with it the facilitation of the network through mining. The potential profits in mining have led to better and better development of technology that make up a massive industry.
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Sunday, November 12, 2017

Entry 4 - Is Bitcoin The Only Cryptocurrency?



(5) Logos from just a small sample of the many different cryptocurrencies.
Bitcoin has become a household name because it was the first cryptocurrency--created in 2009--and is currently the largest cryptocurrency. However, few people have heard of the more than 1,000 other cryptocurrencies that exist today (1).
Litecoin was the next major cryptocurrency to be released after Bitcoin, and it attempted to create an improved copy of Bitcoin. While Bitcoin blocks are processed every ten minutes, Litecoin improved upon this with blocks being process every two and a half minutes (2). The major difference between these two is that Litecoin was created with the Scrypt algorithm. This algorithm uses more high-speed RAM from individual miners than Bitcoin does, allowing its blocks to be processed quicker (2). This gives Litecoin many competitive advantages compared to Bitcoin, but Litecoin remains behind the popularity that the Bitcoin name carries.
Another of the many cryptocurrencies, Dogecoin, can hardly be called a competitor to Bitcoin. Dogecoin was created as a joke currency in 2013 based off of the internet meme, Doge (3). Dogecoin used the Scrypt algorithm found in Litecoin, and its biggest difference is that there are over 100 billion Dogecoins in existence while Bitcoin has a maximum number of 21 million (3). Although created as a joke currency, Dogecoin’s value has risen to a current market value of over $117 million (4). Dogecoin goes to show the variety in the cryptocurrency world and that not all of the cryptocurrencies were created to challenge Bitcoin’s dominance.
Bitcoin is, of course, the largest cryptocurrency with a market value of $100 billion. However, Ethereum, which is the second largest with a market value of $30 billion, gives Bitcoin serious competition (4). Ethereum is relatively new in the market, created in 2015, but it has unique features that have propelled it to the top tier of cryptocurrencies. It got off the ground with an initial sale of 60 million ether tokens for $18.5 million (6). Just as Litecoin reduced the amount of time it takes for a block to be processed, Ethereum blocks are processed in about 12 seconds, making it stand out far above its competitors (6). Ethereum uses what is known as the GHOST protocol, a system coded into the algorithm that accounts for when multiple miners solve a block at the same time (which is more common when blocks are being solved every 12 seconds rather than 10 minutes) (7). Another difference in Ethereum’s code is that it is Turing complete. This means that with sufficient time and power, anything can be calculated (8). This feature allows for extensive variability in how users can code programs within Ethereum. Bitcoin, on the other hand, is not Turing complete, which gives Ethereum a big leg up.
Ethereum, though, is more than just a cryptocurrency; it is a platform for various activities. Its most prominent feature is that Ethereum allows for smart contracts. The main advantage that Ethereum has over Bitcoin is that it allows users to write their own programs or apps, smart contracts being an example (9). Smart contracts have many uses such as requiring a certain number of people to agree before the contract goes into effect, reinforcing verbal contracts, storing information and records, fundraising through feeless crowdsourcing, getting public input on projects and supporting other contracts (9). Most of all, these smart projects ensure decentralized confirmation and security for transactions and agreements.
Ethereum provides unique features that challenge Bitcoin’s dominance, but the name recognition, the size of the Bitcoin blockchain, and its track record of security keep Bitcoin seated on top of the cryptocurrency throne. And while the power is concentrated at the top, there are over 1,000 cryptocurrencies with a total market value of over $195 billion (4). These provide a multitude of features, availability for speculation, and variations in code. Bitcoin is not alone.
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Monday, November 6, 2017

Entry 3 - Is Bitcoin a Secure Currency?

With the threat of Bitcoin exchange hacks, like in the case of Mt. Gox, Bitcoin security is a major concern (8).
Whether putting money in stocks or keeping it in a bank, there is one thing people want to know: will my money be safe? Thanks to federal regulators like the FDIC and SEC, the answer to that question is generally yes. However, security is a big question for a cryptocurrency that is completely unregulated. To amplify that, the fact that Bitcoin has no physical backing brings even more fear for traditionalists. Is using Bitcoin actually safe?
Because Bitcoin is open source, it is constantly checked for issues and no one can hide transactions. Also, due to the competition in mining and the immense computing power associated with it (see Bitcoin Mining: Free Money?), transactions are constantly being processed and checked by a multitude of sources. The history of all transactions is public knowledge and cannot be altered by anyone (2). Thus, the Bitcoin system and the currency itself are fairly secure (1). The blockchain “appears somewhat immune to hacking risks” (3).
The exception to this immunity is what is known as the 51% attack. This could occur if one party controlled a majority of the Bitcoin network. Because of the development of mining equipment, the creation of industrial mines, and the rise in cloud mining, entities handling large portions of the network is becoming increasingly more common. In a 51% attack, the controlling party would have the ability to double spend Bitcoins and obstruct other transactions (4). The party could create their own blockchain, and--since they have more computing leverage than any other--push it through, no matter whether the blockchain is valid or fair (5). If an attack like this occurred, the integrity of the currency would be compromised and the value and credibility would plummet. A crash in the value of Bitcoin would also affect the Bitcoin the attacker owns, which deters this type of attack (3). Ideally, the mining and Bitcoin reward system should entice enough competition to prevent any party from gaining so much control.
So, for the most part, Bitcoin currency itself is safe. However, the biggest threat to Bitcoin security comes from sources independent of the Bitcoin blockchain. Purchasing and selling Bitcoin usually occurs through Bitcoin exchanges. There have been numerous hacks of Bitcoin exchanges. Most notably is the attack of the exchange Mt. Gox (a name originating from a Magic The Gathering Online eXchange) in 2014 in which 850,000 Bitcoins--worth $590 million at the time and worth about $6 billion today--were stolen (1). This left many people with both losses in money and in faith in Bitcoin. Each Bitcoin user has their own private address or key, and hackers stole those keys from Mt. Gox. And with those keys, hackers could take any Bitcoin owned by that key (7). People gave their money to Mt. Gox, but in reality Mt. Gox was not secure. There have been dozens of hacks to similar exchanges. Although exchanges act like banks do for traditional currency, they do not provide the safety and guarantee that a bank does.
The lack of centralization in Bitcoin has its pitfalls. There is no safety net if an unregulated Bitcoin exchange is hacked. There are, of course, ways to try to protect one’s Bitcoin like setting strong passwords, having two-factor authentication, and spreading Bitcoin across multiple exchanges, but there is only so much an individual can do (6). From a computing side, for Bitcoin to continue to thrive and establish itself as a legitimate currency, developing a software and system that prevents hacks and gives users trust in putting their money in exchanges is essential; however, this is difficult to do with no central authority. This is a huge project coding wise and there is no one to assign this project. This rests in the hands of the Bitcoin community.
Is using Bitcoin actually safe? The currency itself maintains its secure position, but the application of this currency through exchanges is always at risk to hacking and something a user must be wary of before using the currency.
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(8) https://news.bitcoin.com/wp-content/uploads/2017/06/Chainalysis-Knows-the-Location-of-the-1.7-Billion-Dollar-Missing-Mt-Gox-Bitcoins.png
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Monday, October 30, 2017

Entry 2 - Is Bitcoin Actually Anonymous?


Users attempt to remain hidden behind their Bitcoin transactions (8)
The cryptocurrency Bitcoin has made a big splash in the past eight years, with the market becoming worth over $100 billion (1). It’s popularity is ever increasing, and rightfully so. There are enumerable reasons to use Bitcoin: improving ease of international purchases, avoiding volatile government currencies, market speculation and currency trading, and purchasing day-to-day items with many participating businesses. However, Bitcoin has become infamous for its popularity with illegal activity. The reason for this is that Bitcoin is known for being anonymous.
The reason Bitcoin receives this reputation of anonymity is that no personal information is required for a Bitcoin address or transaction, giving users a sense of security (2). Those receiving a Bitcoin do not even know the identity of the person sending it (6). This is fueled by the computing process for transactions, in which independent miners process transactions without needing to know the identity of either party. The Bitcoin’s can then be delivered to the user’s pseudonym, which does not have their personal information attached to it. With this idea that their identity is secure, Bitcoin users have used the currency for many shady activities. For example, Bitcoin has been used to purchase illegal drugs and weapons, gamble illegally, hide assets, and make illegal transactions internationally (3). Bitcoin was at the center of the online black market known as Silk Road, which sold countless legal and illegal drugs, medical supplies, and hitman services (4). The anonymity of Bitcoin allowed Silk Road to collect over 9.5 million Bitcoin ($1.2 billion) in revenue (5). Silk Road was later shut down by the FBI, and what this revealed is that Bitcoin is not as anonymous as everyone thought.
It turns out that Bitcoin is not totally anonymous but only “pseudo-anonymous” (6). While no personal information is used, all transactions are public record. Therefore, there are certain things that can giveaway a user’s identity, such as one’s IP address, the timestamp of a transaction, the amount of the purchase and reuse of a Bitcoin address (7). Computational analysis of transactions on Bitcoin’s public ledger can help law enforcement to uncover IP addresses amidst the millions of transactions. Additionally, if a person’s identity is linked to one of their Bitcoin addresses, all of their transaction history can be uncovered, which is a real problem for privacy.
Since anonymity is one of the major reasons people use Bitcoin, there are ways to restore that privacy. For example, users can use softwares such as mixers that try to scramble transactions and  hide IP addresses (6). This is, however, a controversial subject: do we want to protect users’ privacy and allow Bitcoin to remain anonymous or is it better to restrict anonymity in order to prevent Bitcoin from promoting illegal activity?
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Monday, October 23, 2017

Entry 1 - Bitcoin Mining: Free Money?



Bitcoin mining facilities at a mining pool company (9).

In 2009, under the nom de plume Satoshi Nakamoto, an anonymous figure changed the course of currency forever. They released the digital currency dubbed Bitcoin. While most traditional currencies--like the dollar--are paper currencies backed by a central government, Bitcoin is completely electronic and open source, with no authority backing it and no one owning the network (1). This opens the door to innumerable uses, such as online purchases, international transactions, and speculation. But, with no governing body, where does Bitcoin come from?
With a website like google.com, the site is owned by the company and its shareholders and the company is in charge of handling and processing all activity on its site. With Bitcoin, there is no owner and therefore no central person in charge of processing each transaction. The Bitcoin network is composed of the people (2). Independent individuals use their computing power to process Bitcoin transactions, a process known as mining. Any person can use their computer to have a mining software compute difficult calculations, which is the process of handling Bitcoin’s computational needs (3). In order to facilitate the constant computing, there is a reward for mining. Bitcoin transactions come in sets every 10 minutes, known as blocks, and the individual whose software successfully computes the transactions receives a block reward, which is, of course, Bitcoin currency. Are people getting free Bitcoin by just sitting back and watching their computer software process data?
The first Bitcoin block was known as the Genesis Block and was solved on January 3, 2009 (4). The reward was 50 BTC (Bitcoin) and went to an anonymous recipient. For that first block, solving it on a personal computer and watching the proceeds come in may have been feasible. However, as Bitcoin became more popular, so did mining. Because of the immense competition in mining as well as the exponential increase in the number of transactions, mining on an individual laptop is out of the question. Bitcoin mining has become its own industry. There are close to 100,000 miners currently (5). It is estimated that “bitcoin's computing network is more powerful than 525 googles and 10,000 banks” (6) and that “global bitcoin computing power now 256 times faster than top 500 supercomputers, combined” (7). We are far past the days of one person on their individual computer.
Individuals can purchase mining machines that increase their mining computational power for hundreds or thousands of dollars. But now, there are major Bitcoin companies worth millions that are using supercomputers for their mining. Individuals can purchase a stake in these companies’ mining capacity, known as cloud mining. But this mining comes at quite the cost; one estimate puts the annual electricity cost of major mining at $400 million (8). While Bitcoin is just sitting around ready to be collected, that concept of free money is far from reality.


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Entry 5 - Bitcoin Mining Behind the Scenes

A bitcoin mining warehouse in Sweden (10) Bitcoin mining is the backbone of how the cryptocurrency functions (See Bitcoin Mining: Free...