ABSTRACT
Internet trading is almost entirely dependent on trusted third parties, i.e., financial institutions like banks, to process electronic payments. Although the transactions take place well in trust-based models, still it suffers few issues such as transaction costs, limitations in transaction size, and impossibility of smaller transactions and transaction reversal. As such, there are no mechanisms to make a transaction without a third party. Hence, there is a need for a system that uses cryptographic evidence and lets two entities to communicate with each other without a trusted arbiter. In this regard, Bitcoin is the most popular peer-to-peer, distributed electronic currency for transaction without needing a central authority, but it needs a digital signature for secure transaction. Bitcoins are not real or tangible assets. The peers of the network collectively handle the monitoring and authentication of transactions and the issuance of Bitcoins as well. Each Bitcoin transaction is time stamped by hashing them with the chain of existing blocks that are created based on hash-based proof of work. This chapter presents an overview of digital currencies, discusses the Bitcoin transactions and proof of work, reviews the Bitcoin security attacks, and illustrates the Bitcoin development environment.
