Block Chain Technologies

Unit 3- : How Bitcoin Achieves

Decentralization
Department of Computer Science and
Engineering Dayananda Sagar College of
Engineering

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Table of Contents

Centralization Vs
Distributed
Distributed
Consensus
Consensus without identity using a
block chain Incentives and Proof of
Work
Putting it all together

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Centralization Vs Decentralization

Internet
E mail based on
SMTP Social
networking
Decentralization is not all or nothing; almost no
system is purely decentralized or purely
centralized.
Bitcoin protocol is decentralized, services like Bitcoin
exchanges, where you can convert Bitcoin into other
currencies, and wallet software, or software that
allows people to manage their bitcoins may be
centralized or decentralized to varying degrees.
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How Bitcoin Achieves Decentralization?

1 Who maintains the ledger of

2 transactions?
3
Who has authority over which
4
transactions are valid? Who creates new
5
bitcoins?
Who determines how the rules of the
system change? How do bitcoins acquire
exchange value?

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Distributed Consensus

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Distributed Consensus

Alice broadcasts to all the Bitcoin peer-to-peer nodes

at Bob is running one of the nodes in the peer-to-peer
network.
If he wants to be notified that this transaction did in
fact happen and that he got paid, running a node
might be a good idea.
There is no requirement that Bob be listening on
the network; running a node is not necessary for
Bob to receive the funds.
The bitcoins will be his whether or not he’s operating
a node on the network.

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Distributed Consensus

In ScroogeCoin, for optimization, we put

transactions into blocks. Similarly, in Bitcoin, we
do consensus on a block-by-block basis.
all the nodes in the peer-to-peer network have a ledger
consisting of a sequence of blocks, each containing a
list of transactions, that they’ve reached consensus on.
Each node has a pool of outstanding transactions
(Consensus not happened)
Every 10 minutes, every node in the system
proposes its own outstanding transaction pool
to be the next block.
Then the nodes execute some consensus protocol.
If the consensus protocol succeeds, a valid block will
be selected as the output.
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Problems in Consensus

Nodes might crash or be malicious.

In a peer-to-peer system, and not all pairs of nodes are
connected to each other
Thus running a consensus protocol in which all
nodes must participate is not really possible.
There’s a lot of latency in the system because it’s
distributed all over the Internet.
Global Time: The node that sent the first message in
step 1 must do X in step 2.” This simply will not work
because not all nodes will agree on which message was
sent first in the step 1 of the protocol.

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Consensus without identity using a block chain

Sybils are just copies of nodes that a malicious

adversary can create to look like there are a lot of
different participants, when in fact all those pseudo-
participants are really controlled by the same
adversary.

Sybil attack

Nobody is forced to reveal their real-life identity, like

their name or IP address, in order to participate.
That’s an important property and a central feature of
Bitcoin’s design.

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Bitcoin consensus algorithm

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Malicious adversary

Stealing
Bitcoins. Denial
of service
attack. Double-
spend attack.

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Double-spend attack.

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Bob:The Merchant View
Alice broadcasts the transaction that represents her
payment to Bob, Bob is listening on the network and
hears about this transaction even before the next
block is created
Bob can complete the checkout process on the website
and allow Alice to download the software right at that
moment. That’s called a zero-confirmation
transaction.

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Thank You

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