On the Scalability and Security of Bitcoin
Decker, Christian · Repository for Publications and Research Data (ETH Zurich) · 2016
Since its inception in late 2008, Bitcoin has enjoyed a rapid growth, both in value and in the number of transactions.Its success is mostly due to innovative use of a peer-to-peer network to implement all aspects of a currency's lifecycle -from creation to its transfer between users.Bitcoin offers cash-like transactions that are near-instantaneous and non-refundable, while at the same time allowing truly global transactions, processed at the same speed as local ones.It offers a public transaction history, enabling trustless auditability, and it introduces many new and innovative use-cases such as smart property, micropayments, contracts, and escrow transactions for dispute mediation.However, the same features that make Bitcoin attractive for its end-users are also its main limitations.Its decentralized nature limits the number of transactions and the speed at which transactions can be performed and confirmed.The problem with the slow confirmations is compounded with the semantics of the confirmations which are not final, requiring multiple confirmations and further delaying acceptance of a transaction.In the first part of the thesis we analyze whether the current Bitcoin protocol scales and what the scalability limits are.We find that Bitcoin does not scale, because its synchronization mechanism, the blockchain, limits the maximum rate of transactions the network can process.In order to address the scalability problem we propose Duplex Micropayment Channels, which increase the rate at which Bitcoin transfers can be performed by several orders of magnitude, by moving the transfers off the blockchain and using the blockchain solely for dispute mediation.Another form of scalability problem is the fact that more and more blockchain based applications are being created, each