Certified Bitcoin Professional Exam

GPU

(graphics processing unit) is much slower than an ASIC miner. Compared to a typical CPU, a GPU will generally either be faster, or more affordable than a standard CPU

satoshi

0.00000001 (Smallest decimal point of Bitcoin) 100,000,000 Satoshies per 1 Bitcoin

finney

0.0000001

Micro-Bitcoin (μBTC or bit(s)

0.000001

Milli-Bitcoin (mBTC or millibit)

0.001

Cent-Bitcoin (cBTC or bitcent)

0.01

In what year were other currencies based on bitcoin's open source code are created?

2011

WIF format

5J3mBbAH58CpQ3Y5RNJpUKPE62SQ5tfcvU2JpbnkeyhfsYB1Jcn

Bitcoin Improvement Proposals (BIPs)

A BIP is a well structured document that proposes changes to the bitcoin software. These proposals are submitted on the Bitcoin Github at github.com/bitcoin/bips. The proposal must first be sent to the bitcoin-dev mailing list, which it will be discussed by top developers, and then listed on Github. Once listed on Github it can be reviewed, modified, and tested via the entire bitcoin development community, as well as publicly discussed.

Bitcoin Addresses and Keys

A Bitcoin address, or simply address, is an identifier of 26-35 alphanumeric characters, beginning with the number 1, 3, or bc1 that represents a possible destination for a bitcoin payment.

Digital Signatures

A digital signature is a mathematical scheme for demonstrating the authenticity of digital messages or documents. A valid digital signature gives a recipient reason to believe that the message was created by a known sender (authentication), that the sender cannot deny having sent the message (non-repudiation), and that the message was not altered in transit (integrity).

Digital signature scheme typically consists of 3 algorithms

A key generation algorithm, A signing algorithm, A signature verification algorithm

Private Key & Public Key Conversion

A private key can be converted into a public key, but a public key cannot be converted back into a private key because the math only works one way.

Nonce

A random number added the to block header to give something to increment to attempt to produce a valid hash. Nonce will differ miner to miner because of coinbase.

Measure of value / Unit of account

A unit of account (in economics) is a standard measurement of the market value of goods, services, and other transactions. It's a measure of relative worth. Money acts as a standard measure and common denomination of trade. It is necessary for efficient accounting systems.

Where does the security of a modern cipher lie in?

All modern ciphers use keys together with plaintext as the input to produce ciphertext. The same or a different key is supplied to the decryption function to recover plaintext from ciphertext. The details of a cryptographic algorithm are usually made public. It is the key that the security of a modern cipher lies in, not the details of the cipher.

When was Satoshi Nakamoto is last heard from?

April 23rd 2011

How do you generate a bitcoin address?

As we reviewed in the Basic Cryptography section, bitcoin addresses use asymmetric encryption based on a public and private key pair. Your bitcoin address is basically a public key. To generate your bitcoin public key (your bitcoin address) you need to start by generating a private key, which you can then use to derive your public key (address).

When was the major vulnerability exploited? over 184 billion bitcoins were generated in a transaction. Within hours, the transaction was spotted and erased from the transaction log after the bug was fixed and the network forked to an updated version of the bitcoin protocol. This was the only major security flaw found and exploited in bitcoin's history.

August 15th 2010

When domain name bitcoin.org was registered

August 18th 2008

When was a major vulnerability in the bitcoin protocol was discovered?

August 6th 2010

Most Typical Ways to acquire Bitcoin

Bitcoin exchange ATMs Private seller Trade for goods or service (ex: paid for work in bitcoin)

bitcoin the unit: Payment Protocol

Bitcoin the payment protocol is typically referred to with a capital 'B'. This is also the correct way to reference the Bitcoin community as a whole or writing about Bitcoin in general terms. Example: "Today we will be learning about Bitcoin, a cryptocurrency".

Hashing algorithm

Block transactions hashed together into Merkle tree root hash. Combined with previous block hash and nonce, then hashed. (New Block Merkle Root + Previous Block Hash + Nonce)

Coinbase Example/Risk of Keeping Coin on Exchange

Continuing to use Coinbase.com as our exchange example, visitors to the site simply sign up to become a user, and after verification, can connect their bank account or credit card to the website and start purchasing or selling bitcoin. After purchasing the bitcoin, it's typically added to a wallet hosted by the exchange on their website. Since the wallet that the user's bitcoin is stored on belongs to the exchange, the user has no access to the private keys associated with that bitcoin address. This means that should anything happen to the exchange's wallet (ex: the exchange is hacked), the user might have no access to, or suffer from loss of funds completely. Its highly recommended that users transfer their bitcoin from the exchange to a bitcoin wallet that they themselves hold the keys to.

Digital signatures and asymmetric cryptography

Digital signatures employ asymmetric cryptography. In many instances they provide a layer of validation and security to messages sent through a non-secure channel: Properly implemented, a digital signature gives the receiver reason to believe the message was sent by the claimed sender.

Changes in Hash Value

Even a slight change to input data should cause the hash value to change drastically

When did MtGox suspend trading and withdrawals? Later that month MtGox files for bankruptcy protection claiming 744,000 bitcoins had been stolen.

February 2014

Coinbase transaction

First transaction in block, miner sends itself block reward + transaction fees.

Programer Hal Finney downloaded the software the first day of release. On what date did Finney received 10 bitcoins from Satoshi in the world's first bitcoin transaction?

January 12th 2009

When did the network rate exceeded 1 exahash/sec?

January 2016

When the bitcoin network came into existence with the release of the first open source bitcoin client and the issuance of the first bitcoins, with Satoshi Nakamoto mining the first block of bitcoins ever (known as the genesis block), which had a reward of 50 bitcoins. Embedded in the coinbase of this block was the text: The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.

January, 3rd, 2009

When was MtGox bitcoin exchange is launched?

July 2010

When did Wikileaks start accepting Bitcoin donations?

June 2011

When did the network exceeded 100 petahash/sec?

June 2014

Elliptic Curve Digital Signature Algorithm (ECDSA) Example

K = k * G, where k is the private key, G is a constant point called the generator point, and K is the public key. The generator point is a standard and is the same for all bitcoin keys. To calculate our bitcoin address from the public key we will compute K with a SHA256 hash and then a RIPEMD160 hash. This results in a public key hash that we encode with a Base58Check. The end result is our finished bitcoin address.

WIF-compressed type private key encoding would start with a K or an L:

KxFC1jmwwCoACiCAWZ3eXa96mBM6tb3TYzGmf6YwgdGWZgawvrtJ

When was a documentary film titled "The Rise and Rise of Bitcoin" released?

Late 2014

Hash Algorithms

MD4, MD5, SHA, SHA256

Bitcoin Community

Many bitcoin users converse and research bitcoin topics in various ways both online and in person. Community discussion forums such as Bitcoin Reddit, Bitcoin Talk Forum, Bitcoin Core Slack channel, IRC channels. Facebook groups, local meetup groups, bitcoin developer groups, bitcoin related speaking events, lectures, etc. News Sites such as Bitcoin Magazine, Coindesk, CoinJournal. Businesses, such as merchants that are sellers of goods and services, have effects on the bitcoin ecosystem and bitcoin politics. Even larger bitcoin related businesses, such as major exchanges and mining hardware companies, can also affect the bitcoin ecosystem and bitcoin politics. Especially in opinions of average bitcoin users. Governments also can have effects on the bitcoin ecosystem. Adding and removing regulations can have impacts felt throughout the community, usually related to trading prices on exchanges. Some countries have even banned the use of bitcoin, even though its extremely challenging to make sure citizens even comply with the law. In the United States, regulations tend to focus on the US Dollar in relation bitcoin value. Example: businesses selling bitcoin must register with the US Financial Crimes Network (FinCEN). Regulations such as the example above can cause a 'raised bar of entry' to startup a business. Such would increase costs and possibly affect the bitcoin ecosystem. Since bitcoin is a borderless protocol, governments treat it differently in each country, they each of course have their own laws.

When The Financial Crimes Enforcement Network (FinCEN) establishes regulatory guidelines for "decentralized virtual currencies" classifying certain activities involving selling bitcoin as a Money Service Business (or MSBs), that subject individuals and businesses to legal reporting obligations and registration with the department.

March 2013

When did the Cabinet of Japan recognized virtual currencies like bitcoin as having a function similar to real money.

March 2016

When US authorities seize accounts associated with MtGox. The company did not register as a money transmitter with FinCEN.

May 15th 2013

3 functions of currency

Measure of value / Unit of account, Store of value, Medium of exchange

MD

Message Digest. MD5 is just an improved version of MD4.

Purpose of Mining

Mining adds transactions to Bitcoin's public ledger (the blockchain). Thus confirming to the rest of the network that the transactions have taken place. This prevents users from 'double spending' bitcoin, and creates distributed consensus. New blocks are created by a miner finding a hash lower than or equal to the current network difficulty target. If the miner hits the target, a new block is created. The miner is rewarded with a block reward plus transaction fees from transactions they included in their block.

Mt. Gox Exchange

Mt.Gox is a famous bitcoin exchange that suffered a hack, forcing the exchange to close. Most users lost all of their bitcoin and dollars that the exchange was in possession of.

Coinbase.com launches services to buy and sell bitcoin using bank transfers. What date?

October 2012

When did Robocoin and Bitcoiniacs launch the world's first bitcoin ATM in Vancouver BC?

October 2013

When paper authored by Satoshi Nakamoto titled Bitcoin: A Peer-to-Peer Electronic Cash System was posted to a cryptography mailing list. This paper is also known as the bitcoin whitepaper

October 31st 2008

UTXO (Unspent Transaction Output)

Only unspent transactions can be used as inputs for a transaction. Unspent transactions are databases and indexed in the bitcoin software. When a UTXO is used as an input, it is deleted from the database once spent. The destination address is then added as a UTXO.

There are currently three address formats in use

P2PKH which begin with the number 1, eg: 1BvBMSEYstWetqTFn5Au4m4GFg7xJaNVN2 P2SH type starting with the number 3, eg: 3J98t1WpEZ73CNmQviecrnyiWrnqRhWNLy Bech32 type starting with bc1, eg: bc1qar0srrr7xfkvy5l643lydnw9re59gtzzwf5mdq

Mining Areas of Study

Purpose and Functions Algorithm Mining Pools Mining Hardware Security and Centralization

SHA

Secure Hash Algorithm. It was developed by the NIST and NSA. It is considered more secure than other algorithms.

When and why was the Bitcoin Foundation launched?

September 2012. It is launched with the goal to "accelerate the global growth of bitcoin through standardization, protection, and promotion of the open source protocol".

When did Slush Pool mine the first block generated by a mining pool?

September 8 2010

Price Derivation

The bitcoin price can fluctuate like any other currency value. There is no centralized exchange, just exchanges run by businesses. Each time bitcoin changes ownership during a transaction between two parties, both must come to an agreement on its price. Since there is no centralized exchange, the price may vary based on supply and demand, as well as many other factors in the bitcoin ecosystem.

bitcoin the unit: Currency

The currency bitcoin is referenced with a lowercase 'b' and is used typically to reference how much of the currency was transacted. Example: "I just sent 1 bitcoin to my friend".

Bitcoin symbol

The most commonly used symbol to represent bitcoin is a capital letter 'B' with two falling strokes at the top and bottom. This symbol was designed by Satoshi Nakamoto and was used in the original Bitcoin client software. The bitcoin currency unit is also commonly given the informal currency code BTC.

ASIC miners

The most popular mining hardware. ASIC stands for application-specific integrated circuit. ASIC miners are designed for the sole purpose of SHA-256 hashing. They are much faster and efficient compared to CPU and GPU mining.

Decryption

The process of turning ciphertext back into plaintext.

Store of value

To act as a store of value, a money must be able to be reliably saved, stored, and retrieved - and be predictably usable as a medium of exchange when it is retrieved. The value of the money must also remain stable over time. Some have argued that inflation, by reducing the value of money, diminishes the ability of the money to function as a store of value.

Market Orders

Typical users when purchasing bitcoin from an exchange purchase bitcoin from the seller offering it for the least amount. This is called a market order. Most users may not even be aware that these market orders are even placed on the exchange when they buy/sell bitcoin. Most services, such as coinbase.com for example, make the process very user friendly. All the complicated exchange features happen in the background

Symmetric algorithms

Uses the same key for encryption and decryption. Both the sender and receiver agree on a key before they can exchange messages securely.

Asymmetric Algorithms: (Public-key algorithms)

Uses two different keys (a key pair) for encryption and decryption. The two keys are mathematically related, but is computationally infeasible to calculate one key from the other. "Public-key" can be made public without risking encryption. Anyone can use the public key to encrypt a message, but only the owner of the private key can decrypt it.

Medium of exchange

When money is used to intermediate the exchange of goods and services, it is performing a function as a medium of exchange. It thereby avoids the inefficiencies of a barter system, such as the "coincidence of wants" problem. Money's most important usage is as a method for comparing the values of dissimilar objects.

Ledg·er

a book or other collection of financial accounts of a particular type. A ledger is a system by which you are able to record and total monetary transactions by accounts with debits and credits, including a beginning monetary balance and ending monetary balance for each account.

Cryptology

a branch of mathematics which deals with both cryptography and cryptoanalysis

Difficulty adjustment

a change made to the difficulty target for the Bitcoin network every 2016 blocks. Difficulty will go up or down to keep blocks an average of 10 minutes apart from each other.

Centralized mining pool

a group of miners connecting to one single server. In essence trusting the single centralized operator to validate and submit blocks.

Mining Pool

a group of miners that combine hashing power in an attempt to create a block together. The rewards are then slip evenly among the pool based on the amount of power each individual contributed.

SHA 256

a more modern, more secure version of SHA.

Bitcoin the Network

a peer-to-peer based setup in which nodes (peers) connect to each other instead of relying on a central server.

Bitcoin Explorer

a website that acts like a search engine for the blockchain. Visitors can search for transactions by ID, or even lookup by specific address. The website indexes the blockchain and makes it searchable. Blockchain.info is an example of a popular blockchain explorer website. Since explorers are usually synced with the Bitcoin network in real time, you can see transactions instantly when searching. You could even use an explorer to confirm you received or sent a transaction, if you trust the explorer that is.

Cryptographic hash function

allows one to easily verify that some input data maps to a given hash value, but if the input data is unknown, it is deliberately difficult to reconstruct it by knowing the stored hash value.

Hash Function

any function that can be used to map data of arbitrary size to data of fixed size. The values returned by a hash function are called hashes.

Bitcoin Functions as a Public Ledger...

because all transactions are literally made public. Since transactions propagate throughout the network, each computer running the bitcoin software receives a copy of every transaction. This is the blockchain. A public record of every transaction that has taken place on the network.

Block reward

bitcoin rewarded for finding block. Block reward started originally at 50 bitcoin, but is halved every 210,000 blocks until the total bitcoin supply of 21,000,000 bitcoin is in circulation.

wallet

collection of private keys used to authorize and sign transactions. There are a variety of wallets, and sometimes they function and manage private keys in different ways.

Bitcoin Transactions

consist of inputs and outputs. Inputs are similar to making a debit from a ledger, and similarly a output is like making a credit to a ledger. The input and output don't necessarily add up when reconciled, because a small amount missing implies a transaction fee was paid to the network for the transaction.

Cryptoanalysis

deals with breaking ciphertext, that is, recovering plaintext without knowing the key.

Cryptography

deals with making communications secure.

Mining Pools and 51% Attacks

have a higher likelihood of achieving 51% of the network hashing power if enough companies or individual miners combine enough of their power together in the pool.

"Spending" bitcoin

involves signing the transaction with a digital signature made up of your public and private key. The digital signature provides proof of ownership of the bitcoin, and the entire network can verify your transaction is valid based on the digital signature.

Cryptographic algorithm (also known as a cipher)

is a mathematical function which uses plaintext as the input and produces ciphertext as the output and vice versa.

After a transaction is signed

its broadcast to other computers running the bitcoin software. Eventually, the transaction is organized into the blockchain inside a block. This means the network consensus agrees your inputs were valid and that your outputs destination is now in possession of the bitcoin you chose to send.

P2P Pool

operates in a fashion the requires each miner to run their own bitcoin node, and independently validate their own blocks. This helps curb the mining centralization to a certain extent

How Transactions are organized

organized into blocks by miners, that validate all transactions and attach the new block to the blockchain. This process happens every 10 minutes on average. Blocks are then sent to every node on the network, and miners begin to work on the next block.

51% attack

possible if a miner or mining pool controls more than 50% of the mining power on the network. The miner could be able to double spend / reverse transactions should the attack work successfully. Simple put, the miner would wait for a block with their transaction in it, then mine that same block again, and also the block after it, before the rest of the network has a chance to mine the aforementioned block itself. However, it's typically more profitable just to use such large hashing power to mine regular blocks and be paid the block reward. 51% attack can only attack transactions, allowing double spends mentioned above. An attacker will not be able to steal bitcoin or change UTXO totals.

Single (solo) miners

run their own nodes, validate their own blocks, and mine by themselves. They don't share any of their rewards. This method was the original purpose of mining, however, blocks are typically generated much slower. For miners with very low hashing power, they might not ever generate a single block, which makes pooled mining more appealing

key generation algorithm

selects a private key at random from a set of possible private keys. The algorithm outputs the private key along with its corresponding public key.

centralized ledger

specifically a ledger that is held and managed by a governing party, such as a single trusted person, company or 3rd party, or government. example, your bank is managing a centralized ledger for your account, and the accounts of other customers and businesses.

signature verification algorithm

that used with your data + the public key, either accepts or denies the signatures claim to authenticity.

Encryption

the process of turning a clear-text message (Plaintext) into a data stream which looks like a meaningless and random sequence of bits (ciphertext).

Software wallet

typically software hosted on a computer running an operating system such as Windows, iOS, or Linux

Bitcoin Creator

unknown person that goes by the alias Satoshi Nakamoto

CPU mining

was the original way to mine bitcoin

To calculate your public from your private key

we use a technique called Elliptic Curve Digital Signature Algorithm (ECDSA). The public key is calculated using the elliptic curve multiplication in which the math only works in one direction.

signing algorithm

when used with your data + private key produces a signature

Bitcoin Exchanges

work like a money or stock market. Other users like yourself on the exchange offer to sell bitcoin at a price of their choosing, other users offer to buy bitcoin at a price of their choosing. When these orders overlap, a sale is made. Thus the supply and demand of bitcoin on an exchange creates a price value per coin.