Bitcoin and Cryptocurrency Technology:A Survey

Assel Ramazanova
Department of Computer Science
School of Science and Technology
Nazarbayev University
Astana, Kazakhstan
E-mail: assel.ramazanova@nu.edu.kz

AbstractBitcoin is a new kind of cryptocurrency that has

attracted million people in recent years, providing reliability of
security and free transaction operations . The main purpose of
the Bitcoin is to serve as independent digital currency, where
money are managed by users in direct way instead of financial
institutions such a bank. This invention has become the research
area of interest for significant scientists and we can witness
technical improvements in Bitcoin mechanics annually. In this
survey, I start
by introducing fundamental concepts,
classification of Bitcoin and review the main features of Bitcoin
foundation. Besides, I also provide benefits gaining from the
digital currency and disadvantages which we might face with.
For this purpose, I compare data from all possible researchers
that have already done and analyse the mentioned problems. This
survey involves both the technical and economical points of view.
Keywords Cryptocurrency; Bitcoin technology; mining;
cryptography;

I.

INTRODUCTION
Since a few decades ago the humanity have witnessed
numerous technological advancements, in which the most
significant change came with the internet. Today, almost
everyone has his or her virtual world due to the social networks
or on-line game communities. Thus, there was necessity of
virtual money in order to buy and exchange virtual goods and
services as in real life.For this purpose, the first digital money
was created in 1996 called E-gold and has the same properties
as real money.[33] Although there are distinct between virtual
currency and cryptocurrency, both of them are types of digital
currency.These currencies can be categorized in different way
based on their implementation, the usage area or the interaction

Fig. 1. Types of virtual currency schemes (ECB 2012) [22]

with real world economy. The most reasonable classification

was done by anon in 2012 as presented in [22] figure 1.
The first type is mostly used in on-line game communities and
explained as a closed scheme. Game players usually can make
payments for subscription or to move on the next level during
the game or to order other services via this type of money. This
kind of currency is closed scheme as it can be earned and
wasted only virtually. Regarding the second type of virtual
currency, it is possible to buy them via real money but after
that, they cannot be exchanged back to real money. This kind
of money mostly popular in social networks . The third type
[20] is used in the same way as any real world currency and
exchanged in a bidirectional flow. Of course,all of these three
types of currencies have some advantages and disadvantages.
However, there is the only type that can compete with real
money and the best example for this is a Bitcoin. This
classification of currencies is not on which this survey will
based on.
Here is a technology-wise way to categorised the
currencies[21], where one type of electronic money works with
a client-server model and the second is a distributed currency
that uses peer-to-peer model as in Bitcoin case. In this survey,
I will deeply examine Bitcoin system structure providing the
technical background and the cases of security and privacy
risks. Besides, I will also provide an economical point of view,
highlighting the role of Bitcoin in economy.
II.

BITCOIN OVERVIEW

A. A Brief History
Bitcoin was first created in the world on 31 October 2008
by Satoshi Nakamoto[1], who introduced the invention in his
article named as "Bitcoin: A Peer-to-Peer Electronic Cash
System.Satoshi Nakamoto is known as Bitcoin founder and he
created the first Original Bitcoin client. Nobody know what
exactly considered under Satoshi Nakamoto pseudonym. It
might be one person or group of people. The one thing we can
be convinced in is that he is a Japanese. It can be observed
from P2P profile where he said about it. He has been working
on his project for almost 3 years. In 2010 he disappeared and
stopped involving any improvements . The latest message from
him indicated that Satoshi Nakamoto is "gone for good[8].
His implementation was available in January 2009 as open
source code. Despite the fact that there were other
cryptocurrencies before Bitcoin has created,it is often known as

the first cryptocurrency in the world. To be more precisely,

Bitcoin is the first decentralised digital currency. The main
objective of Bitcoin was to create unusual type of digital
currency which would be independent of financial institutions
[ 22] . All operations between participants would be performed
via internet and directly.
III.

A TECHNICAL OVERVIEW OF BITCOIN

In this part of the survey, I will explain the main aspects
of Bitcoin technology as it was introduced by Satoshi
Nakamoto in [1] Bitcoin: A peer-to-Peer Electronic Cash
System, in 2008. In order to clear understanding all basics of
Bitcoin in terms of the usage operations and the work
processes , there must be covered particular aspects such as
transactions process, peer to peer network system,
cryptography, block chain and mining. So, Bitcoin is a
complex scheme that has a well designed structure and whose
implementation involves a cryptographically methods along
with distributed algorithms. The main feature is that bitcoin is
decentralised currency. In other words, Bitcoin unlike other
cryptocurrencies does not have a central bank that would
control them. That is why, the starting point of survey will
review
how to eliminate the third party in order to
decentrilized the currency.
A. Decentralized Digital Currency
Bitcoin is a peer to peer version of cryptocurrency which is
mostly used for online payments through the Internet, whose
transactions are not controlled by financial institutions such as
bank. Instead of that, the bitcoin system is based on
cryptographic proof that allow people to transfer a coin each
other without the third party[15].Turning to the deep
examination of bitcoins structure, we have to clearly
distinguish centralised digital currency from decentralised
digital currency as it is shown in figure 3. It is known from
traditional or real money, all transfers are conducted by
consulting the third party. For example, let us assume person 1
want to send some coins to person 2. The person 1 need a
trusted source to verify their contract and issue new coins
maintaining all data with serial numbers linking them to
accounts owners. In our real life, for centralized currencies the
trust source can be considered as a bank. In this case, the
transfer process would verified by the bank, after that the
person 2 would get the ownership contract due to the sign
of person 1. Regarding the decentralised design[4], there is no
central control and people can easily to exchange the coins
directly over the blockchain without the government
observation. Now, there is the question of who or what does
take the role of a central bank. The answer is that every
participant considered as a bank and maintain a copy of the
transaction data which would be kept in a traditional bank. So,
in Bitcoin this distributed ledger replaced with Block chain
and all transactions take place there. In addition to this,
Bitcoins are not created by the government organisations[3]
but in a Bitcoin mining processing in which the mentioned
block chain is used. Thus, although there are a considerable
number of networks that can be exist, all of them distinct
based on two factors: centralised his is known as a star and
distributed or grid.

Fig. 3. Centalized, Decentralized and Distributed Networks [4]

B. Transactions
Saying about any transactions and payments we always
imagine a real money and in Bitcoins operations think of some
coins. However, in reality there are not any physical coins that
we can touch. Saying coins, in fact we say about the chain of
the transactions. In order to have a clear picture of it, we
have to turn to the structure of Bitcoin transaction process. So,
as was mentioned above, each coin is considered as a digital
signature.
In figure 4, we can observed the linked list of coin owners,
where each participant transfer the coin to the next one by
digitally signing a hash of transaction that was done before it.
The public key of the second owner must be signed too and
they are added to the and of the electronic coin[17]. The main
issue users might faced with is a double-spending. This term
means that one owner tried or tend to use one Bitcoin more
than once.
Satoshi Nakamoto illustrated the solution in his
project, that can be observed in figure 4, providing open source
code for implementation and detailed description. At first
glance, it seemed to be that the only way to avoid this attack is
to have a trust third party that would verify each transaction

Fig. 4. Simplified Chain of Ownership [1]

The term difficulty [8] in Bitcoin area used when we want

to say how it is hard to find a new hash in a given condition.
The difficulty measure can be calculated by dividing the
highest possible target on the current target.
D. Bitcoin Security: Cryptography
Because Bitcoin security and privacy relies on
cryptographic algorithms, it is wisely to review cryptographic
basics at first. It is also the main reason why Bitcoin is
refferedd as cryptocurrency.The cryptographic methods that
used in Bitcoin transaction process and were observed in [10]
are well known and implemented in other application for
protection information security. As for Bitcoin, it covers two
cryptographic schemes: digital signatures and cryptographic
hash functions[13]. Both of them have the same traditional
approaches as those which widely used to protect government
organizations security.
Fig .5. An example of a blockchain in the Bitcoin network [1]

before adding it to block chain. The idea is that after each

transaction operation, the coin must be mined once again
creating new coin, thus avoiding a double-spending (Fig.5).
Only those coins which were issued from mint can be proved.
However there is a problem with this solution: the quality of
this operation directly depends on the company where coins are
mined. There must be proof that previous owner did not sign
any transactions before. Therefore, we need to know all data
about all transaction have done.In order to realise this solution
without the third part, all transactions must be publicly
available. Moreover, there must be a system in which the
potential owners would perform the proof-of-work.
C. Block Chain and Bitcoin Mining
Block chain can be imagined as a digital cupboard where
each shelf is a block of information. The information in the
shelf contains all data about transactions in order from the
period when that block chain was created. Almost every 10
minutes a new blocks are created in the Bitcoins world. [6]
Block chain gives the opportunity to avoid users from double
spending. In Bitcoin, the term double spending means that
some participant attempts to use one Bitcoin more than once
intending to gain money or because of other
reasons.
However, from Satoshi Nakamoto [1] we know how avoid this
attack. I will examine it in detail in survey later. Turning back
to block chain, we need to a deeply look to its structure. When
the data is added to block chain, new block is connected with
previous block and this process looks like a linked list. It is
required in order to determine the coins ownerships[19]. The
whole number from bottom to top of that blocks or shelves
are called block height. So called block height is always
updating and increasing, as long as the mining process
works[9].From this statement, we can note one important
feature that the bigger block height the more difficult for
block to be proved and added to block chain.[3][17]
In order to be valid to block chain it must be satisfied a
proof-of-work condition.[12] It stands for that the user before
verifying the transactions must to do a certain work to prove
that they a real users. The proof-of-work scheme has been
known from other areas when it was used against to denial of
service attack.[3]

Bitcoins core protocol is available to anyone, has been

improved by thousands of security scientists from
cryptography area. When we use bitcoin, it is similar to using
other private applications in virtual world, for example social
network or internet banking. In order to log in these
communities you should have a password. [7] Likewise, these
other web services, you must access your bitcoin with a private
key to be convinced that you are the only owner of this coin.
Digital signatures
Digital signature [2] is an electronic signature whose
implementation combines cryptographic algorithms of
originator authentication and computation of conditions and a
set of parameters, in order to verify the signer identity.[5]
Briefly speaking, digital signatures allow to authenticate a
message between two participant
verifying following
aspects:

Fig.6. The process of how digital signature is applied and then verified.

Fig. 8. Three main currencies illustration

The third one is the most popular, that is Bitcoin which has
attracted research community.
Fig. 7. A calculation of Bitcoin address [13]

Authentication: the recipient can verify that the message

came from the sender;

Non-repudiation: there is no chance to return the

sending message;
Integrity: the message has not been interfere with.
The implementation of digital signatures involves public key
encryption;
In Figure 6, the process of digitally signing a message is
illustrated.
In Figure 7, a Bitcoin address is calculated by running a public
key through several hash functions as shown above. Here, It is
important to note that at first, a key is not a public but a private.
A hash function is a one-way cryptographic function that takes
an input and turns it into a cryptographic output. Saying oneway it stands for that it is impossible derive the input from the
output. It can be explained as she you encrypt something, and
the lose your key. In the hashing process, all blocks are linked
to each other in a sequence. Therefore each hash impact on the
following blocks. Because we can not know There is a
requirement to start with a group of 0s.
IV.

BITCOIN PROSPECTS
In this part, I will observe the economical role
of
cryptocurrencies, particular of Bitcoin. I will also provide the
advantages and disadvantages of Bitcoin usage, giving
examples where they are relevant. In final section, I will share
with some future expectations for Bitcoin fate.
In Table 1, three the most popular kind of electronic
currencies are listed[14], where the earliest one is the currency
called as E-gold. The second is named as Perfect money and
we can categorize it as a currency with undirected flow. It
means this currency mostly used for online services and can be
exchanged only in one way(from real money to virtual money).

A. The Risks
Now, we have introduced with a technical background of
digital currency and can understand in what way they will
work properly. All inventions, along with their benefits have
some unsolved problems or risks[25]. Let us analyse these
features for Bitcoin.
1.The Disclosure of an anonymity. Although all transaction
processes held in open areas, there is a guarantee of anonymity
as the accounts are not attached to the personal data of users.
However, in the case of uploading the account number in social
networks, forums or somewhere else in the internet it is
possible to identify the account owner. Moreover, if there are
the increasing number of users that are known it is also
possible to remove the anonymity theoretically due to
statistical methods.[25]
2. Data loss. As traditional money, cryptocurrencies also
can be stolen or lost. As a rule all data are saved in computers
as well as files[16]. That is why there is the same risk for
cryptocurrencies as for other documents. Furthermore, they can
not be returned after that. This kind of criminal can be done
via viruses that distribute the wallet data to unauthorized
persons or even via computers with viruses which used for
mining.
B. Economical Role of the Bitcoin: Statistics
Since Bitcoin was invented, there were attractions not only
from computer scientists but also from economists. Because
bitcoin is one kind of money, it can be compete with other
world currencies[11][15]. Annually, the number of users is
increasing. For example, from the figure 8, we can see that the
use of Bitcoin has grown significantly in the period of 6 years
beginning from 2009 , reaching a peak in July, 2015 (at just a
over 192.000 transactions). It is also shown that until 2012m
there almost was not any operations. It means that Bitcoin was
contributed lots of efforts before gaining such popularity in the

Fig. 8. Daily Bitcoin Transactions (www.coindesk.com)

world[24]. For figure 9, the pattern is almost the same: the

Bitcoin amount are increasing constantly.
C. The Future Evaluation of the Bitcoin
It is very hard to evaluate the Bitcoin future because there
was not any equivalent that has ever existed before. So, the fate
of the bitcoin can go in different ways. The more people
concerning and speculating about it, the more opinions are
exist. Obviously, there are three main directions:
1. Bitcoin will be used everywhere, becoming a global
currency and there will not other world currencies;
2. Bitcoin will serve as today, facilitating our payment
operations, but not like a main currency;
3. Bitcoin will replaced by other currency, and disappear
from the world economy totally;
Of course, the listed cases only kinds of suggestions and
there can be some disputes, but every option can occur.
V.

CONCLUSION
In this survey, I have described Bitcoin technical
background covering all basic aspects relevant to mining,
transactions and cryptography methods. The main objective of
paper is to emphasise the necessity of exploring trust in Bitcoin
system. For this purpose I have studied the broad field of
Bitcoin, including its benefits and risks. It is a highly dynamic
area of research, and yet need a lot of work for future
development. To conclude, Bitcoin is a potential currency that
can replace real money.
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