Use of Bitcoin for Internet Trade

Use of Bitcoin for Internet Trade

Sadia Khalil (NUST School of Electrical Engineering and Computer Science, Pakistan), Rahat Masood (NUST School of Electrical Engineering and Computer Science, Pakistan) and Muhammad Awais Shibli (VisionIT, USA)
DOI: 10.4018/978-1-5225-7766-9.ch028

Abstract

Bitcoin is considered to be the world's first peer-to-peer and unregulated crypto-currency which has received widespread popularity in the last few years. It is issued and controlled by the members of the Bitcoin system. The success of Bitcoin has spurred the launch of many other crypto-currencies. Despite being widely adopted by various large-scale businesses, Bitcoin transactions are still exposed to many known as well as zero-day attacks due to various vulnerabilities being exploited by the malicious entities. In order to achieve reliable and secure transactions, extensive research needs to be carried out to critically examine Bitcoin architecture and its level of security. In this regard, this chapter presents a holistic analysis of Bitcoin architecture and a survey of the attacks prevalent to its transactions. As an evaluation of the Bitcoin system, a comparison of different crypto-currencies has been presented, based on their features, possible attacks, disadvantages, and the advantages which they possess over Bitcoin.
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Introduction

The advent of the digital currency systems has revolutionized the concept of money transfer by allowing the internet based creation, storage and transference of money. In the past few years, the digital currency systems have emerged as an efficient means of money transfer. They have received worldwide adoption by providing a medium of exchange based on mathematical operations and by taking the currencies out of the control and manipulation of the governments. In addition to being used in the e-commerce and commercial sectors, the digital currencies have also attracted a large population of the earth which cannot get access to the formal banking systems. The crypto-currencies, being one of their types, involve different cryptographic functions for their creation and transference, in a trusted and secure environment. The use of crypto-currencies has progressed from a virtual concept to reality by the evolution of Bitcoin. The success of this concept has led to the creation of many other crypto-currencies which include Litecoin, PeerCoin, Namecoin, Quarkcoin, Primecoin and Zetacoin (Stevenson, 2013). Bitcoin, along with the other crypto-currency systems, is very popular in the business world and the global economy, due to its decentralized peer-to-peer architecture. In comparison with the other payment platforms, which maintain a private communication network for sending and receiving money, Bitcoin uses the internet as its medium of transference.

By Looking critically into the Bitcoin protocol, we can find some weaknesses that can be violated by the attackers for malicious purposes. In the past few years, a lot of vulnerabilities have been exploited causing the users to lose their bitcoins (L., n.d.), (Blasco, 2013), (arXiv, 2014). Matthew Wilson et al. (Yelowitz, 2014) analyze the characteristics of the Bitcoin users based on the Google search data and found that illegal activities and programming enthusiast are related to Bitcoin search but no correlation was found with political and investment motives. As of March 2014, bitcoins of worth 502,081,166.11$ have been stolen (L., n.d.). Based on the empirical analysis of Bitcoin exchange risks, it is found that the failure rate of bitcoin exchanges is 40% (Christin, 2013). Mt. Gox that was considered to be the largest Bitcoin exchange, got bankrupt in February 2014, allegedly due to theft, resulting in the loss of 850,000 bitcoins, out of which 20,000 were later recovered (https://en.bitcoin.it/wiki/Mt._Gox, n.d.).

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