L4 - Consensus in Bitcoin

Question 1

How would a digital currency with a central authority look like?

Answer 1

The CA would sign and create every new block and publish it to the network.
Other nodes validate the content and append the new block to their own copy of the chain.

Question 2

Disadvantages of a CA?

Answer 2

• CA has to be nominated
• CA can unilaterally ignore or delay transactions
• CA could render the network unavailable by being overloaded or intentionally shut down

Question 3

Problem of random dictatorship

Answer 3

Problem of fairly choosing a random participant as the central authority. We must ensure that no one is getting chosen more often by creating multiple identities (Sybil attack).

Question 4

is mining part of the consensus mechanism?

Answer 4

No.

Question 5

What is a Sybil attack?

Answer 5

Where a user creates and controls multiple identities for malicious purpose
E.g. in a random dictatorship the attacker would create an arbitrary number of nodes to increase his chance to be selected as the central authority.

Question 6

What is the Sybil control mechanism in Bitcoin?

Answer 6

Proof-of-Work (PoW) is the Sybil control mechanism for validating the expenditure of the computational work.

Question 7

What is the logic to avoid Sybil attacks?

Answer 7

We need to bind the probability of getting selected to a scarce resource. In PoW, that resource is the computational hashing power. Now the chance of getting chosen is proportional to the computational power. Thus, creating new identities does not give you an advantage.

Question 8

Disadvantages of Proof of Stake (PoS)

Answer 8

• requires large amounts of stake

Question 9

What is a consensus?

Answer 9

Common world state

Question 10

What is it called in Game Theory when the central authorities may not stick to the protocol?

Answer 10

Byzantine Generals Problem

Question 11

What is the Byzantine Fault Tolerance (BTF)?

Answer 11

The goal is for all loyal generals to derive the same plan without the traitors being able to convince other generals of the wrong plan.

–> If more or equal to one third of the generals are malicious, it is impossible for the honest nodes to derive a common plan

Question 12

Definition of Distributed Consensus and two properties that must hold

Answer 12

A network consists of N nodes. Each node has an input value that they propose to other nodes. Some of the nodes are faulty (not responding) or malicious, trying to propose a wrong input.
Two properties must hold:
- The process has to terminate with all honest nodes in agreement on the same input values.
- The value must have been generated by an honest node

Question 13

What is the world state in Bitcoin?

Answer 13

The longest chain

Question 14

What is probabilistic consensus?

Answer 14

The consensus mechanism is an ongoing process in Bitcoin. Therefore, the order of blocks or transactions is never 100% final

Question 15

What is PoW

Answer 15

The network selects a random node to propose a new block using PoW. This ensures that probabilistic consensus can be reached assuming over 50% are honest.

Question 16

What are incentivized nodes?

Answer 16

The network incentivizes nodes to participate in the consensus algorithm. They receive Bitcoins for created blocks which are included in the longest chain.

Question 17

1. Step in consensus of Bitcoin

Answer 17

Transaction Broadcast: Every node that receives transactions or creates them broadcasts them to the network, making everyone aware of the new transaction

Question 18

2. Step in consensus of Bitcoin

Answer 18

Block Building: Every node collects the valid transactions, orders them and creates a new block containing the transactions. (mining nodes do this)

Question 19

3. Step in consensus of Bitcoin

Answer 19

Random Node Selection: A node is randomly chosen out of the network. It is able to propose its block to the network. (random selection like with PoW)

Question 20

4. Step in consensus of Bitcoin

Answer 20

Other nodes receive the block from the randomly chosen node and validate whether it is correct. A correct block only contains valid transactions

Question 21

5. Step in consensus of Bitcoin

Answer 21

Block acceptance: other nodes show their acceptance for this block if the nodes build new blocks on top of the recently proposed block.

Question 22

What is an orphan block?

Answer 22

A block that has been proposed in the network but has not been included in the longest chain.

Question 23

What happens to transactions which are included in the orphan blocks?

Answer 23

• unconfirmed transaction are stored in the mempool before they get added to a block
• unconfirmed transactions are gossiped in the network so every node will know of all transactions
• when a new block is proposed, all nodes update their mempool and remove the transactions which were included.
• Hence, the transaction in an orphan block are simply considered as unconfirmed, waiting to be included in a later block

Question 24

Does every node solve the same puzzle?

Answer 24

No, every node has a different puzzle, as the TX0 (reward -address) is different from node to node.

Question 25

What is the block time?

Answer 25

Time between the creation of two blocks (In Bitcoin block time = 10min)

Question 26

Disadvantages of too fast block time?

Answer 26

• Higher possibility of chain forking, leading to multiple realities
• network has to keep track of these forks even if many will be orphaned
• empty blocks

Question 27

How is the network speed adjusted?

Answer 27

1. Measure how long the last 2016 blocks took to get mined (=T)
2. Calculate the factor of speed (two weeks/T) = F
3. The difficulty gets increased (F>1) or decreased (F<1)
   3a (maximum increase = 4; maximum decrease = .25)
4. This process is done every 2016 blocks.

Question 28

Bitcoin size of data field?

Answer 28

8 bytes

Question 29

Representation

Answer 29

unsigned integer

Question 30

smallest unit

Answer 30

1 satochi

Question 31

base unit

Answer 31

1BTC = 100m Satochi

Question 32

Maximum amount of BTC

Answer 32

almost 21 million

Question 33

current bitcoin reward

Answer 33

6.25 bitcoin

Question 34

What is the transaction fee

Answer 34

difference btw inputs and outputs

- the higher, the faster the transaction gets included in the blockchain

Question 35

Coinbase transaction

Answer 35

• first transaction in a block
• Txin that has no Txout
• consists out of block reward (newly available Bitcoins which are introduced into the system) and transaction fee
• content of coinbase transaction:
• block height
• up to 100 arbitrary bytes that can be put into the transaction input (scriptSig)

Question 36

History of chips

Answer 36

1. CPU
2. GPU
3. FPGA
4. ASIC (Application-specific integrated circuit)

Question 37

What is a mining pool

Answer 37

Miners work together to stabilize their monthly income

• organized by the pool manager
• pool manager proposes for each new block height a block prototype to his pool, requiring PoW to be done (Tx0 –> pool manager)
• near-solutions are sent to the pool manager to prove some work. Each proof is called a share.
• Solutions are also sent to the pool manager and pushed into the network
• pool manager receives mining reward and distributes it among the shares, keeps a fee