Bitcoin: An Innovative Alternative Digital Currency

December 2011 | Hastings Science & Technology Law Journal, Vol. 4, p.160 – Reuben Grinberg

Bitcoin is a digital, decentralized, partially anonymous currency, not backed by any government or other legal entity, and not redeemable for gold or other commodity. It relies on peer-to-peer networking and cryptography to maintain its integrity. Compared to most currencies or online payment services, such as PayPal, bitcoins are highly liquid, have low transaction costs, and can be used to make micropayments. This new currency could also hold the key to allowing organizations such as Wikileaks, hated by governments, to receive donations and conduct business anonymously.

Although the Bitcoin economy is flourishing, Bitcoin users are anxious about Bitcoin’s legal status. This paper examines a few relevant legal issues, such as the recent conviction of the Liberty Dollar creator, the Stamp Payments Act, and the federal securities acts.


Bitcoin & Gresham’s Law – the economic inevitability of Collapse

December 2011 | Philipp Güring & Ian Grigg

The Bitcoin economy exhibits remarkable and predictable stability on the supply side based on the power costs of mining. However, that stability is challenged if cost-curve assumption is not solely expressed by the fair cost of power. As there is at least one major player, the botnets, that can operate at a power-cost-curve of zero, the result is a breach of Gresham’s Law: stolen electricity will drive out honest mining. This has unfortunate effects for the stability of the Bitcoin economy, and the result is inevitable collapse.


2011 Observations on the Digital Currency Industry

December 2011 | Digital Gold Currency Magazine – Mark Herpel

This document takes an informal look at non-bank digital currency payment systems, online value transfer software and digital precious metals (DGC). Focus is placed on the evolution of these systems over the past decade along with the developments of new models including software, products and regulations.


Analysis of Bitcoin Pooled Mining Reward Systems

November 2011 | ArXiv – Rosenfeld, Meni

This paper describes the various scoring systems used to calculate rewards of participants in Bitcoin pooled mining and explains the problems each were designed to solve.


On Bitcoin and Red Balloons

November 2011 | arXiv – Moshe Babaioff, Shahar Dobzinski, Sigal Oren, Aviv Zohar

Many large decentralized systems rely on information propagation to ensure their proper function. We examine a common scenario in which only participants that are aware of the information can compete for some reward, and thus informed participants have an incentive not to propagate information to others. One recent example in which such tension arises is the 2009 DARPA Network Challenge (finding red balloons). We focus on another prominent example: Bitcoin, a decentralized electronic currency system.

Bitcoin represents a radical new approach to monetary systems. It has been getting a large amount of public attention over the last year, both in policy discussions and in the popular press. Its cryptographic fundamentals have largely held up even as its usage has become increasingly widespread. We find, however, that it exhibits a fundamental problem of a different nature, based on how its incentives are structured. We propose a modification to the protocol that can eliminate this problem.

Bitcoin relies on a peer-to-peer network to track transactions that are performed with the currency. For this purpose, every transaction a node learns about should be transmitted to its neighbors in the network. The current implemented protocol provides an incentive to nodes to not broadcast transactions they are aware of. Our solution is to augment the protocol with a scheme that rewards information propagation. Since clones are easy to create in the Bitcoin system, an important feature of our scheme is Sybil-proofness.

We show that our proposed scheme succeeds in setting the correct incentives, that it is Sybil-proof, and that it requires only a small payment overhead, all this is achieved with iterated elimination of dominated strategies. We complement this result by showing that there are no reward schemes in which information propagation and no self-cloning is a dominant strategy.


Bitcoin: Tempering the Digital Ring of Gyges or Implausible Pecuniary Privacy

October 2011 | Matthew Elias

Bitcoin is a peer-to-peer cryptocurrency; which is entirely decentralized, open-source, and non-institutional. A comprehensive history of Bitcoin transactions is constantly distributed among users, while partial anonymity is accomplished through public/private key transactions. Bitcoin differs from digital currencies like Zynga, Second Life, and E-Gold, because no central authority issues new currency, instead it is ‘mined’ by self-interested individuals. States have an interest in regulating Bitcoin, due to its purported desirability as a medium for funding the drug trade, terrorism, and other subversive activities. Bitcoin’s architecture will encourage continued adoption, which will result in mounting pressure on the legal systems of interested states to codify a solution.

The architecture of the internet leads individuals to perceive themselves as having a greater degree anonymity when online. Bitcoin’s architecture is analogous in that it utilizes peer-to-peer networking and cryptography, resulting in a similar perception of anonymity. But, anonymity on the internet is a function of one’s technical knowledge and ability, and of the amount of resources one is able to dedicate towards that end. States, international bodies, and institutional actors constantly struggle with crafting their laws to mollify this equilibrium.

Anonymity in electronic money was severely diminished after E-Gold. But, money needs to be understood as the basis for price-indexes through which individuals disseminate information to one another. To divorce the concept of the money and the concept of internet would be a wholly incoherent course of action at this point. For these reasons, attempts on the part of international actors and states at regulating Bitcoin will not result in a reduction in its anonymity to a quantum less than that of the internet.


Bitcoin NFC

August 2011 | David Allen Bronleewe

This paper describes the development of Bitcoin NFC, an Android app designed to send bitcoins from one Android device to another.


An Analysis of Anonymity in the Bitcoin System

July 2011 | arXiv – Fergal Reid, Martin Harrigan

Anonymity in Bitcoin, a peer-to-peer electronic currency system, is a complicated issue. Within the system, users are identified by public-keys only. An attacker wishing to de-anonymize its users will attempt to construct the one-to-many mapping between users and public-keys and associate information external to the system with the users. Bitcoin tries to prevent this attack by storing the mapping of a user to his or her public-keys on that user’s node only and by allowing each user to generate as many public-keys as required. In this chapter we consider the topological structure of two networks derived from Bitcoin’s public transaction history. We show that the two networks have a non-trivial topological structure, provide complementary views of the Bitcoin system and have implications for anonymity. We combine these structures with external information and techniques such as context discovery and flow analysis to investigate an alleged theft of Bitcoins, which, at the time of the theft, had a market value of approximately half a million U.S. dollars.


Money Nutters

July 2011 | Bill Maurer


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