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?
References:


at 1 comment:

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.


References:

at 3 comments:
Subscribe to: Posts (Atom)

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...