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The premise behind Bitcoin is that users of the system can transfer bitcoins to each other without the need of a central authority, such as a financial institution, to validate transactions and monitor double-spending. This validation is instead performed by nodes participating in the Bitcoin P2P network, as by design, all transactions are broadcast to the network.
Once a user installs a Bitcoin client on their machine, they can transfer bitcoins directly to another Bitcoin user. A Bitcoin address is 34 characters long and is newly generated by most Bitcoin clients each time a transaction occurs, so one user can have numerous addresses.
Bitcoin uses a public key cryptography system for transactions between users. Each Bitcoin user has a pair of public and private keys which is stored in a special file on their system called a Bitcoin wallet. So, up until this point, the transfer amount, one BTC, has still not been transferred to BY as it needs to be verified and permanently recorded in the network before it can be spent.
What happens next is the distributed computing aspect of the Bitcoin system:. The block chain, which is a record of all transactions that occurred in the system since the very first one initiated by Nakamoto — called the genesis block — is downloaded to every Bitcoin client's machine, to the client's Bitcoin data directory with the file name 'blk So once a transaction is accepted into the block chain it is visible to all in the network and is irreversible.
Because the transaction is in the block chain, redoing it would mean all miner nodes would have to redo its associated block, as well as all blocks that follow it, since each accepted block contains a hash of the previous one. Hence, this is the Bitcoin system's solution to the problem of double-spending. But as mentioned by Nakamoto [ 6 ], as long as honest miner nodes have the majority of CPU power in the network, 'an attacker would have to redo the proof-of-work of the block and all blocks after it and then catch up with and surpass the work of the honest nodes.
The Bitcoin wallet contains a public and private key pair, as mentioned previously, as well as an address created each time a transaction occurs. Because a new address is generated for each transaction, the wallet can contain many addresses and key pairs. So, a Bitcoin user having X number of bitcoins in their wallet really means they have in their wallet one or many Bitcoin addresses, and a corresponding private key that is needed to resend the bitcoins sent to that address.
This also means that anyone can spend the bitcoins sent to the Bitcoin user's address if they have access to their address and its corresponding private key. This is why the Bitcoin wallet file is a popular target for malware. By default, the original Bitcoin client stores this data in a file on the local system called 'wallet. The location of this file is saved in the Bitcoin data directory, along with other data files used by the client.
Depending on the OS, the default locations for the wallet. Default locations of the wallet. Note that Bitcoin users can also store their wallet data via other means, such as through websites that store their Bitcoin wallet by sending their bitcoins to a Bitcoin address generated by the website for instance instead of keeping their wallet data on their machine.
As previously mentioned, the role of the miner nodes connected to the Bitcoin network is to solve a computationally difficult problem tied with transactions before they are accepted into the block chain. This computational problem is in fact a bit value, which in Bitcoin terminology is called the target for a block.
The miner's task is to iteratively calculate the SHA cryptographic hash of data in the block's header data, which includes a four-byte value called a nonce that is incremented every time a hash is generated by the miner. The aim of this iterative process is to generate a SHA hash value that is lower than the target value.
Once this hash is generated by the miner, the block is broadcast to other miner nodes where they verify that the calculated SHA is in fact lower than the target, adding it to the block chain if it is so.
This process of a miner generating hashes to validate a block takes time and expends CPU effort, which comes at a cost, i. To provide incentive to those willing to volunteer their computers for this task, the network awards bitcoins 50 BTCs at the time of writing to the account of the miner that generated the correct hash to validate a block.
This is why they are referred to as 'miners', since this is the way in which bitcoins come into virtual existence. Additionally, the number of bitcoins created through this mining process is in fact controlled by the system. The difficulty [ 7 ] of the target that is set for each block being worked on is adjusted collectively by the network every 2, blocks so that, on average, six blocks are solved per hour. This difficulty can increase or decrease, depending on how quickly the last 2, blocks were generated by the miners.
If the network finds that miner nodes generated the blocks too quickly, the difficulty is increased, 'to compensate for increasing hardware speed and varying interest in running nodes over time', as Nakamoto explained in his paper. Also, the reward of 50 BTC given to the successful miner node will change over time; reducing by half every four years or approximately , blocks to be exact, so that by approximately the Bitcoin system will stop generating bitcoins.
After this point, transactions will still need to be verified, but a miner that solves a block will only be rewarded with bitcoins if the block contains transaction fees specified by transferors from their own wallets. Nakamoto set it up this way to control the total currency generated in the network, so that by no more than 21 million bitcoins in total will be in circulation.
At the time of writing, , [ 8 ] blocks have been solved, meaning approximately 9. The real-world value of a bitcoin BTC has fluctuated since the system's inception, influenced by supply and demand, its increasing popularity over the years, attention from the media and criminal elements, as well as a number of security incidents. As mentioned previously, bitcoins can be exchanged for real-world currencies, and a number of Bitcoin exchange websites exist that facilitate these exchanges.
The first one established was the Bitcoin Market [ 9 ] on 6 February , and over the years more exchanges have surfaced, with the Bitcoin wiki [ 10 ] listing about 66 exchanges. The value of the bitcoin currency can vary depending on the exchange used, but the most widely used exchange, Mt.
Gox [ 11 ], provides a good indication of its value since the exchange was launched on 18 July As we shall see later, only a week after this peak, we saw the first trojan in the wild targeting Bitcoin users.
Bitcoin users that choose to mine for bitcoins must run special mining software on their systems to accomplish this task. Due to the brute force needed to generate hashes, mining software requires extensive processing power to aid in its calculations, using the system's CPU, GPU or FPGA to help increase the hash rate.
Basically, bitcoin miners communicate with a Bitcoin client configured as a server, which in turn interacts with the Bitcoin network to retrieve blocks to work on. The miner retrieves work i. Upon successfully solving a block, the Bitcoin network would then assign a special transaction contained in each block called a coinbase transaction , which contains the reward, to the address of the Bitcoin client. Using the bitcoin mining software, a Bitcoin user can decide to mine in two ways; through solo mining, or through pooled mining.
The bitcoin miner, which can run on the local machine or a remote one, is then configured to send getwork requests to the server. To throw more muscle at the hash calculations, many Bitcoin users also set up mining rigs with high specification systems dedicated to mining. Pooled mining differs from solo mining in that bitcoin miners send getwork requests, this time to a remote server — called a mining pool server — configured to allocate work to many miners connected to the pool, sharing the bitcoin reward among those who contributed to solving a block.
The pool server requires miners to create an account and most charge a fee a percentage of the rewarded BTCs for their service. Due to the increase in miner nodes and thus the increase in difficulty of solving blocks, many find that, depending on their processing power, it can take anything from days to years if ever to solve a block while solo mining. This is why pooled mining is popular, since a pool's combined processing power means blocks are hashed and solved at a faster rate, and participants receive a steady stream of bitcoins for their contribution.
There are many mining pool servers online, and as we shall see later, use of these mining pools is common among malware writers.
Installing mining software on a system is not the only way of mining for bitcoins. By creating an account with the site, the user can:. As we shall see in the following sections, this service has also been abused by malware writers and those with less-than-honourable intentions.
The way in which the whole Bitcoin system operates has appeal to computer users and the general population. Advocates of the Bitcoin system list numerous advantages to using it, including:. Such advantages, as well as media attention, have seen an increase in the number of Bitcoin users.
For example, a post made on the popular Slashdot forum [ 14 ] on 11 July about the release of Bitcoin v0. But the fact that many businesses, including online stores and retailers, are now accepting bitcoins also plays a factor in its increased usage. Some online retailers, providing products such as clothing, home accessories, electronics, books, music, consumables, the list goes on, see bitcoins as a legitimate payment method.
So the rising interest from media and business, and increasing trust in the Bitcoin system has seen it become a legitimate currency that has a multitude of supporters behind it. These supporters, however, are not always backing the system for honest reasons.
Abuse of the Bitcoin system can come in many different flavours, ranging from individuals over-zealous in their bitcoin-mining endeavours, to security breaches resulting in the loss of thousands of bitcoins, and criminal elements using the currency to fund their underground activities.
The breach happened when an IT worker with privileged access 'installed a "bitcoin miner" application on ABC servers' [ 17 ] so that visitors to the ABC website would unknowingly participate in generating bitcoins for the perpetrator.
Exact details of this bitcoin miner application were not revealed, but most likely it was script embedded into the site's source, such as the one provided by Bitcoinplus. The worker kept his job and was given a slap on the wrist, but his willingness to use corporate resources to mine for personal gain demonstrates how far some will go to reap the Bitcoin rewards. Security breaches of a more serious nature have also occurred on a number of occasions, this time involving the transfer of a large sum of bitcoins from Bitcoin users and Bitcoin exchanges.
A number of incidents made headlines in and early including:. On 9 May , Wired. Pointing out the gambit of illegal activities already occurring through the Internet, they suspect Bitcoin will 'attract money launderers, human traffickers, terrorists, and other criminals who avoid traditional financial systems by using the Internet to conduct global monetary transfers.
First described in a Gawker article [ 24 ] on 1 June , Silk Road is an online drug marketplace that allows visitors to browse through a library of illegal drugs and purchase them from sellers located around the world using bitcoins exclusively. Access to Silk Road is only possible through Tor [ 25 ], a system that enables online anonymity by encrypting and routing Internet traffic through a network of relays run by volunteers.
This combination of accessing the site through the Tor network and buying with bitcoins makes it difficult for authorities to track these purchases.
Bitcoin may not be as anonymous as it seems, as mentioned by a Bitcoin core development team member, Jeff Garzik, in the same Gawker article. He stated that even though transactions are anonymous, the fact that all transactions are recorded in a public ledger block chain means that 'law enforcement could use sophisticated network analysis techniques to parse the transaction flow and track down individual Bitcoin users'. And researchers from University College Dublin published an analysis [ 26 ] of anonymity in the Bitcoin network on 30 September , showing they could 'de-anonymize considerable portions of the Bitcoin network' using passive analysis of publicly available data, as well as follow the flow of bitcoins using different network analysis tools.
The first malware to target Bitcoin was discovered in the wild on 16 June , and first reported in the Symantec blog [ 27 ]. A also known as Infostealer: Coinbit by Symantec , was spammed to Bitcoin users as a private message on various Bitcoin forums [ 28 ].
Its sole purpose was simply to search for a wallet. The trojan then connects to the SMTP server 'smtp. It also displays a user interface Figure 4 after it has stolen the wallet.
Although lacking in sophistication, this trojan made it clear that bitcoins were now on malware writers' radars, and the wallet. The factor that made the wallet. The Bitcoin developer and user community have consistently given advice and technical know-how to all Bitcoin users on how to encrypt the wallet — devoting a section on the Bitcoin wiki, for instance, on how to properly secure the wallet [ 29 ].
Backing up the wallet and storing it on an encrypted disk image is a common recommendation given to users, and as development of the Bitcoin client progresses and newer versions are released, the option to encrypt the wallet has been introduced into the software, as shown in Figure 5. Bitcoin client wallet encryption. So theft of the wallet. A reassess their strategy. Other families known to steal the wallet.
It contains a routine, named Bitcoinsub , that emails the wallet. A batch file trojan that is dropped by a self-extracting RAR, along with a VB script that launches it. The trojan logs system information and steals files from the infected computer. It copies the wallet.