U19CS701- Blockchain Technologies
CO2: Analyse Bitcoin and its limitations by comparing with other alternative coins
UNIT II CRYPTOCURRENCIES
Bitcoin – Digital Keys and Addresses – Transactions
– Mining – Bitcoin Networks and Payments – Wallets
– Alternative Coins – Theoretical Limitations –
Bitcoin limitations –Name coin – Prime coin – Zcash
– Smart Contracts – Ricardian Contracts – Use cases
of Bitcoin Blockchain scripting language in
micropayment.
Bitcoin Definition
• Introduced in 2008 by Satoshi Nakamoto(pseudonym, true identity is
unknown)
• Bitcoin is the first application of blockchain technology
• Bitcoin can be defined in various ways; it's a protocol, a digital currency,
and a platform. It is a combination of peer-to-peer network, protocols,
software that facilitate the creation and usage of the digital currency
named bitcoin.
• Nodes in this peer-to-peer network talk to each other using the Bitcoin
protocol. Bitcoin with an uppercase B refers to the Bitcoin protocol,
whereas lowercase b refers to bitcoin, the currency.
• Bitocoin is the very first fully decentralized digital currency, has proven to
be extremely secure and stable from a network and protocol point of view.
• As a currency, bitcoin is quite volatile
Early digital cash
• E cash in 1982 – Banks issue random serial number, digital currency
signed using blind signature, identifies double spending problem but
could not prevent it.
• Adam Back, CEO of Blockstream introduced hashcash in 1997,
Hashcash is a proof-of-work system originally designed to limit email
spam and denial-of-service attacks, and later became a foundational
concept for cryptocurrencies like Bitcoin.
• In 1998, B-money was proposed by Wei Dai, Computer Engineer,
Microsoft, who introduced the idea of using Proof of Work (PoW) to
create money
Bitcoin
• In 2008, the first key idea of Bitcoin was introduced through a paper
called, Bitcoin by Satoshi Nakamoto (available at
https://bitcoin.org/bitcoin.pdf);
A Peer-to-Peer Electronic Cash System
It doesn’t need an intermediary bank to transfer payments between
peers.
• Bitcoin is built on decades of cryptographic research in Merkle trees,
hash functions, public key cryptography, digital signatures with
BitGold, B-money, hashcash and cryptographic time stamping.
• The key issue that has been addressed in Bitcoin is an elegant solution
to the Byzantine Generals' Problem along with a practical solution of
the double-spend problem
Bitcoin Price in INR on 24.07.25
https://www.blockchain.com/explorer
Price History of Bitcoin
Bitcoin Regulation
Securities and Exchange Commission (SEC)
• Announced that digital tokens, coins and relevant activities such as
Initial Coin Offerings (ICOs) fall under the category of securities.
• Any digital currency trading platforms need to be registered with SEC
and will have all relevant security laws and regulations applicable to
them.
• This impacted the Bitcoin price directly and it fell almost 10% on the
day this announcement was made
• The growth of Bitcoin is also due to so-called network effect, also called
demand-side economies of scale.
• It is a concept that the more users who use the network, the more
valuable it becomes. Over time, an exponential increase has been seen
in the Bitcoin network growth.
Double spending problem
• Double spending problem arises when a user sends coins to
two different users at the same time and they are verified
independently as valid transactions.
• The double spending problem is resolved in Bitcoin by
using a distributed ledger (blockchain) where every
transaction is recorded permanently and by implementing
transaction validation and confirmation mechanism.
Sending a payment to
someone
• 1. Bitcoin Payment Request(Using Bitcoin
Wallet)
• First payment is requested from a user by
sending his Bitcoin address to the sender via
email , SMS or chat.
• The sender can also initiate a transfer to
send money to another user. In both cases,
the address of beneficiary is required. As an
example, the Blockchain wallet is shown here
where a payment request is created:
Sending a Payment -Bitcoin Payment QR Code
2. The sender either enters the receiver's
address or scans the QR code that has the
Bitcoin address, amount and optional
description encoded in it. The wallet
application recognizes this QR code and
decodes it into something like
• Please send <Amount> BTC to the Bitcoin
address <receiver's Bitcoinaddress>.
3. This will look like as shown here with
values:
Please send 0.00033324 BTC to the Bitcoin
address
1JzouJCVmMQBmTcd8K4Y5BP36gEFNn1ZJ3.
4. This is also shown in the screenshot
presented here:
Bitcoin Transaction
In the wallet application of the sender, this transaction is constructed by following some rules and
broadcasted to the Bitcoin network. This transaction is digitally signed using the private key of the
sender before broadcasting it. Now the transaction is created, digitally signed, broadcasted,
validated and added to the block
• https://developer.bitcoin.org/reference/block_chain.html
Attributes of a Bitcoin Transaction
Attributes of a Bitcoin Transaction
Size: This is the size of the transaction in bytes.
Weight: A measure of the size of a transaction in weight units (WU). It's used to enforce the 4 MB block weight limit
introduced by SegWit.
Segregated Witness (SegWit) SegWit stands for:
•Segregated = separated
•Witness = digital signature data
Received Time: This is the time when the transaction is received.
Included In Blocks: This shows the block number on the blockchain in which the transaction is
included.
Confirmations: This is the number of confirmations by miners for this transaction.
Total Input: This is the number of total inputs in the transaction.
Total Output: This is the number of total outputs in the transaction.
Fees: This is the total fees charged.
Fee per byte: This field represents the total fee divided by the number of bytes in a transaction.
For example 10 Satoshis per byte.
Fee per weight unit: For legacy transaction it is calculated using total number of bytes * 4. For
SegWit transactions it is calculated by combining SegWit marker, flag, and witness field as one
Steps of Bitcoin Payment in Network
1. Transaction starts with a sender signing the transaction with their
private key
2. Transaction is serialized so that it can be transmitted over the network
3. Transaction is broadcasted to the network
4. Miners listening for the transactions picks up the transaction
5. Transaction are verified for their validity by the miners
6. Transaction are added to the candidate/proposed block for mining
7. Once mined, the result is broadcasted to all nodes on the Bitcoin
network
Bitcoin Currency Units –Various Denomination
• The bitcoin currency, being digital has various denominations which are shown in the
following table. A sender or receiver can request any amount. The smallest bitcoin
denomination is the Satoshi. The bitcoin currency units
