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2014 IEEE International Conference on Internet of Things (iThings 2014), Green Computing and Communications (GreenCom

2014), and Cyber-Physical-Social Computing (CPSCom 2014)

Towards Reference Architecture for

Cryptocurrencies: Bitcoin Architectural Analysis

Israa Alqassem, Davor Svetinovic

Electrical Engineering and Computer Science
Masdar Institute of Science and Technology
Abu Dhabi, United Arab Emirates
Email: {ialqassem, dsvetinovic}

AbstractBitcoin is a new protocol with a potential to 3) Alleviate potential security risks when integrating
revolutionize nancial system. Bitcoin has a complex structure, further components or extending the system.
where several interacting components build a peer-to-peer cur- 4) Map the quality attributes such as scalability, security,
rency and a payment system without relying on any trusted and performance onto advanced modular architec-
third party. Bitcoin is continually improved by an open source tures.
community, and various Bitcoin libraries, APIs, and alternative
implementations are being developed. Nevertheless, there is no This work examines the high priority aspects of Bitcoin
up-to-date protocol specication or architecture description since
the ofcial whitepaper was published back in 2008. In this paper,
architecture1 , i.e., the main components and the interactions
we provide an up-to-date protocol specication and architectural between them. We cover both structural (static architecture)
analysis of the Bitcoin system. We perform this analysis as the and behavioral (dynamic behavior) aspects of the system [3].
rst step towards specication of the cryptocurrency reference This is done from the perspective of building the models
architecture. The future reference architecture will serve as a that will be useful for the design of the general reference
starting architectural point for the development of new systems architecture [4] for cryptocurrencies.
that leverage Bitcoin protocol in different contexts and for various
purposes. We also discuss whether the current architecture The rest of the paper is structured as follows. Section II and
satises the systems primary purpose, i.e., providing a pure Section III present Bitcoin protocol specication and the major
decentralized version of the cryptocurrency. architectural components. Section IV presents the analysis of
Bitcoin initialization and starting processes. Section V presents
further cryptocurrencies and systems that are derived from
Bitcoin. Finally, Section VI concludes the paper and points
As more insights into the problem domain are gained, a out our future work.
software system evolves to meet newly arising unexpected
constraints to serve long-term business functions. Managing II. B ITCOIN P ROTOCOL S PECIFICATION
software evolution by modeling and documenting the architec-
ture of an already-developed system is of high importance to Bitcoin represents a new concept of money as it is a
enhance understanding, reveal whether the real implementation currency, a global digital payment system, and a peer-to-
matches the predened system context, system maintenance, peer electronic nancial institution. The protocol was designed
etc. [1]. Increased ability to manage software evolution can to facilitate the shift from centralized monetary systems to
help us facilitate strategic requirements engineering [2]. decentralized distributed network of individuals [5], [6]. Bit-
coin provides public ledger where all transactions are publicly
Bitcoin is incrementally developed and evolved. The fre- stored and can be accessed by any node connected to the
quent changes that the system undergoes are needed to main- Bitcoin network. This public ledger, in Bitcoin terminology,
tain and enhance its protocol, add new features or improve is called blockchain. The blockchain is the key innovation of
existing ones, and to meet the evolving requirements in such the Bitcoin protocol, and it can be viewed as a distributed data
a vibrant cryptocurrency ecosystem where exchange markets, structure that contains all account numbers and balances.
mining pools, and merchants accepting bitcoins and other
alternative coins are growing exponentially. Blockchain replication, as Figure 1 depicts, ensures sys-
tems availability and secure transactions. Furthermore, public-
To facilitate Bitcoins modiability, maintainability, key cryptographic algorithm is used for signing and authen-
reusability, and comprehensibility it is necessary to develop ticating transactions as well as verifying the ownership of
an architecture model that achieves the following goals: Bitcoin accounts. Addresses in Bitcoin are representations of
public keys, and users are strongly recommended to gen-
1) Provide a basis for eliciting additional requirements erate different address for each transaction to protect their
and constraints by evaluating the systems technical anonymity. More specically, when a user generates a new
feasibility. address, a pair of keys public and private are created. A
2) Help in understanding and evaluating the rationale
behind the Bitcoin design and implementation, hence 1 We analyze the architecture of Satoshi ofcial client version 0.8.6.
paving the way towards alternative design approaches 2 Capitalized term Bitcoin refers to the protocol, while lower case term
that improve and rene the current architecture. bitcoin refers to the coin itself as a unit of currency.

978-1-4799-5967-9/14 $31.00 2014 IEEE 437

DOI 10.1109/iThings.2014.78
miners to solve new blocks. Table I summarizes the vital
requirements of a good proof-of-work algorithm [7].

B. Difculty Adjustment
The development of new technologies may affect the
blockchains stability and the transaction speed by generating
new blocks very quickly. Therefore, tuning difculty is a must
for all cryptocurrencies that use proof-of-work-like mecha-
nisms, where the signicance of the difculty adjustment lies
in its ability to control the block generation rate and limit the
accumulated mining reward.
In Bitcoin, block mining difculty is determined by the
value of the networks target. The target is a 256-bit number
shared by all clients, and to accept a new block the SHA-
256 hash of its header must be lower than or equal to the
current network target. As mentioned earlier, the hash of a
block is computed using a random nonce value in addition
to the blocks header data. Miners keep altering the value of
nonce, which results in entirely changing the blocks header
hash, until a valid hash is found. Therefore, the higher the
number of random values a miner can generate per second the
higher the chances to meet the target in less time.
Fig. 1. Bitcoin Core Concepts Diagram
The Bitcoin network generates a new block roughly every
10 minutes and the adjustment occurs after creating 2016
transaction is signed by the private key and the corresponding blocks by comparing the actual time for creating the last
public key is used to verify that transaction. While conrm- 2016 blocks with the two-week goal of difculty adjustment,
ing transactions is carried by a consensus mechanism called then the new target is updated by the percentage difference
Proof-of-work [6]. according to the formula:
New target = Current target Actual time it took to create
A. Proof-of-Work the last 2016 blocks / 2 weeks
Proof-of-work uses Hashcash-double SHA-2563 to gener- Whenever a new target is calculated, it is distributed to all
ate a unique hash value for each block in the blockchain. The clients in order to update the difculty value as specied by
connectivity of the blockchain is achieved by linking the hash the formula:
of a new block to the hash of its parent in the chain all the
way up to the hash of the genesis block. Difculty = Maximum target / Current target
In the blockchain, each block encapsulates one or more Where the maximum target is a pre-dened large number
transactions. And a new block can be appended to the chain if [8]. An interesting example related to difculty adjustment is
it has a valid proof-of-work (i.e., a hash value which meets a the highest jump in block generation rate which occurred in
certain difculty). The hash of a block is calculated based on a 2010, between block 68543 and 685444 , where the difculty
random nonce value and the blocks header data, e.g., previous value rose from 45.39 to 181.54 (more than 300% increase)
block hash value, timestamp, transactions merkel root, etc. In as the time between the two blocks was less than 2 minutes
other words, the hash value should be lower than or equal to the [9], [10], [11].
current network target, which makes the probability of nding
a valid proof-of-work very low and time and power consuming C. Bloom Filter
process. Target and difculty adjustment are explained in detail
in the next subsection. Although the difculty adjustment regulates the number
of newly created blocks, the growing size of the blockchain
Theoretically, any node connected to the Bitcoin network is a major concern for users with limited memory space
can participate in creating a block by nding a valid proof- like Bitcoin mobile users. For this reason, Bloom lter was
of-work, where brute-force searching or the so-called bitcoin implemented.
mining is the only way to do so. In return for mining process,
bitcoins are generated and sent out as reward to miners, i.e., Bloom lter is a practical implementation of Simple Pay-
nodes which solve proof-of-work and participate in creating ment Verication (SPV) clients. SPV client releases users from
blocks. Mining reward is currently the main source of minting keeping a local copy of the blockchain [12], [13]. Bloom lter
bitcoins, and its value per block halves approximately every was introduced as a protocol extension in October 2012 in Bit-
four years (or exactly after creating 210,000 blocks) until it coin Improvement Proposal number 37 (BIP: 0037) to enhance
reaches zero, by then, transactions fee, which we talk about memory usage and to speed up blockchain synchronization
later, will eventually replace mining reward to incentivize [14]. The main motivation behind implementing this feature
4 The number represents the depth of the block in the blockchain.
3 Bitcoin uses double SHA-256 (hashes the same value twice).


Feature Description
Scalable difculty The ability to adjust proof-of-work difculty must not be xed. In
other words, if the block generation rate is high the difculty should
increase and it should decrease otherwise.
Fair distribution of wealth All miners are equally likely to get the mining rewards. In Bitcoin,
the SHA-256 hashcash function along with the difculty adjustment
algorithm guarantee this.
Easily veriable results The ability to verify proof-of-work values by network nodes promptly
and without delaying or relying on a central authority. SHA-256 by
its nature is a one-way, fast and easy to verify function.
Sensitivity to tempering block data This is essential to strengthen blockchains connectivity and to main-
tain the networks security by preventing malicious attackers from
modifying transactions within blocks.

is the increasing amount of network bandwidth required to (i.e., the number and values of the transactions inputs and
download blocks in order to validate transactions. outputs).
Bloom lter is a probabilistic data structure, used to retrieve 2) Transaction Priority: Each transaction is assigned a
records from a data set where the retrieved data may have some priority. The priority value equals to the summation of each
false positive matches but not false negative [15]. In Bitcoin, inputs value multiplied by that inputs age, where the age of an
Bloom lter is used with a congurable false positive rate to input equals to the total number of transactions conrmations.
enable a SPV user to retrieve all transactions connected to The value of transaction priority does matter since in each
his wallet along with a percentage of irrelevant transactions. newly created block there is a predened block size dedicated
Irrelevant transactions act as a noise to prevent other nodes to high-priority transactions regardless of the fee they pay. In
from linking addresses and transactions to a certain users the ofcial client version 0.8.6 the default block priority size
wallet. Therefore, a user can increase or decrease false positive was increased to 30,000 bytes.
rate based on the available bandwidth he has and the privacy
level he seeks. 3) Transaction Merkle Tree: Bitcoin uses Merkle tree to
verify the integrity of transactions within a block. Transactions
are hashed and concatenated repeatedly until one hash is left,
III. B ITCOIN M AIN C OMPONENTS i.e., Merkle root. Merkle root is a single hash combines all
transactions included in a block, it is kept in the block header
To obtain a basic understanding of Bitcoin transaction
and used by SPV clients to verify transactions without the need
system, Figure 2 shows the high level representation of the
to download the whole blockchain.
Bitcoin transaction domain model. In this section, we will look
over the domain objects in more details. 4) Fee Policy: The decision on when to pay a transaction
fee is based on the transactions priority and size. The fee is
A. Transactions required when the priority is less than the minimum dened
priority or if the size of a transaction exceeds a certain
Transactions serve not only as a mechanism to transfer threshold. The values of minimum priority and maximum size
money from one entity to another but also as a payment are updated in each Bitcoin release and sometimes varies
verication system. Previous transactions outputs are used among different Bitcoin implementations [19]. The reasons for
as inputs to a new transaction, the output cannot be spent the continuous fees policy adjustments are:
partially and that is why Bitcoin transactions have two parts:
the payment and the change. The change is sent back to the to free more space in blocks for high priority transac-
payer. tions;
There are various types of transactions, e.g., coinbase and to prevent old bitcoins owners from monopolizing
transaction is special type of transaction with no inputs. One the free transaction area by transferring large amount
coinbase transaction is created per block with a single or of old coins simultaneously.
multiple output addresses. The output addresses specify the
recipients of the mining reward plus the collected transaction It is worth mentioning that an extra fee can be included in
fees (if any). Coinbase transaction outputs can only be spent a transaction to speedup its conrmation time. Moreover, if a
after a certain number of block conrmations, i.e., the number transaction conrmation is delayed, re-broadcasting is possible
of blocks appended to the chain after the block containing the using specic API calls [20] or a web service that provides this
coinbase transaction. This number is dened as the coinbase facility such as Broadcast Transaction [21].
maturity, and currently its value equals to 100 block conrma-
tions. On the other hand, Bitcoin dust denes a transaction with B. Memory Pool
output less than a certain threshold. Dust transaction requires
a fee [16], [17], [18]. A local storage of unconrmed transactions exists at each
node. After a node receives a transaction, and before including
1) Transaction Size: Transaction size depends on how the that transaction in its memory pool, the node makes sure that
funds are received and the amount of payment that is made the received transaction is properly structured and was not



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Fig. 2. Bitcoin Transaction Domain Model

previously spent, i.e., all or a subset of the inputs appeared can be achieved by either choosing coins with high priority
previously as inputs to another conrmed transaction in the or minimizing the number of transaction inputs, i.e., reducing
main blockchain. The term orphan transaction is used to transactions data size. First, this algorithm tries to retrieve
describe an invalid transaction that cannot be added to the coins with at least six conrmations (an-hour-old coins).
memory pools. A transaction can be invalid in many cases, e.g., Second, it tries to minimize the transaction size by choosing
the amount of fee provided is less than the amount required, minimum number of inputs to the current transaction. Finally,
the total input coins does not equal to the total output coins, it considers the amount of change returned from the current
etc. [22]. transaction and selects a set of coins with the smallest value
above the required payment and fee values, this algorithm is
As long as the node is connected to the Bitcoin network, its also careful to avoid choosing coins that result in generating
memory pool is kept synchronized with other connected node Bitcoin dust [23].
pools. Synchronization is necessary to remove transactions
when they become conrmed and to prevent the size of the
memory pool from growing exponentially. D. Blockchain
Blockchain serves the following functionalities [24], [25]:
C. Wallet and Coin Selection
facilitates the coordination between networks nodes
Bitcoin wallet stores information about users accounts,
to process transactions;
addresses and the transactions related to them. Users should
protect their wallets from being accessed by third parties and encapsulates the values of proof-of-work and dif-
they should make backups as the wallets contain all the keys culty, as highlighted in the previous section, that are
needed to spend their bitcoins. responsible for maintaining networks security;
To compose the total amount of coins required to com- helps in verifying the ownership of transferred coins.
plete a transaction, the client has to decide which previous
transaction outputs should be selected from wallet as inputs 1) Blockchain Fork: A fork in the blockchain happens
to the current transaction. In Bitcoin protocol this process is when two blocks are created at almost the same time. When
called coin selection. Coin selection algorithm is a knapsack this happens, the miners continue building the chain onto the
problem. Its purpose is to minimize the transaction fees which block they receive rst. The chain with the longest series of

blocks coming from the genesis block is considered the main, 2) DNS Seeds: they are enlisted in the source code and
i.e., the chain with the maximum total difculty. can be used to acquire a list of Bitcoin nodes that are
connected to the network.
Blockchain fork can be very serious issue, in effect it is
3) Connect callback address: using getadd request to get
indistinguishable from having a monetary system with two
peers addresses that are stored at a remote database.
different databases. The Bitcoin network experienced such a
getadd request is sent in two cases: (a) remote node
situation in March, 2013. The blockchain was divided into two
has more recent version, (b) the size limit of peers
halves due to backward-incompatible changes between clients
addresses stored in the local database is not reached.
versions 0.7.0 and 0.8.0, where in version 0.8 LevelDB re-
4) Seed addresses: if the previous discovery mechanisms
placed BerkeleyDB for the storage of blocks and transactions.
do not work, there is a list of hardcoded IP addresses
This incident opened the Bitcoin communitys eyes to a more
for nodes that are known to run Bitcoin client per-
series problem; a bug that could, in whatever way, lead to
manently/most of the time.
invalidating the whole blockchain, therefore a checkpoint list
5) addnode =< ip >: this command is used to connect
was introduced to freeze the main blockchain from genesis
to a specic node given its IP addresses.
block up to a predened certain block.
2) Hardcoded Checkpoint List: In the standard client a list The seed addresses and DNS seeds are not advertised
of periodic hardcoded checkpoint blocks was introduced to in response to getaddr request. Additionally, Bitcoin node
prevent anyone from going back and revising the blockchain advertises its address to other connected nodes in the network
history thus double-spending the whole amount of coins [26]. every 24 hours and addresses that belong to inactive peers are
In version 0.8.6 block number 250,000 is the most recent block erased periodically.
in the checkpoint list, which means the main blockchain is
secured from genesis block up to block number 250,000. V. R ELATED W ORK
There has been serious criticism of this hardcoded list Several alternative cryptocurrencies and systems derived
as it violates the pure Bitcoin protocol described in Bitcoin from the Bitcoin protocol were implemented. A subset of such
ofcial whitepaper [6]. One possible solution is to implement cryptocurrencies and systems are presented in this section.
an automatic approach to detect and handle forks properly and
immediately. A. Namecoin and .bit Domain

E. Alerting System Namecoin takes advantage of Bitcoin source code to build

a decentralized Domain Name System (DNS) that stops In-
Alerts are notication messages broadcast over the Bitcoin ternet censorship. stated: As Bitcoin frees money
network when a critical problem occurs, e.g., upgrading is Namecoin frees information access. Hence, Namecoin aims
needed when an older client version becomes obsolete. They to prevent Internet Censorship as well as serve Dot-Bit, a
are broadcasted in a similar way to transactions; both alerts and new Top-Level Domain (TLD) outside the control of Internet
transactions have private and public keys needed for verica- Corporation for Assigned Names and Numbers (ICANN).
tion and authentication puposes. At least the lead developer of
the Bitcoin project has access to the alerting systems private Similar to Bitcoin, Namcoin uses SHA-256 proof-of-work
key which enables him to send out alert notications and any hash function, hence the same hardware can be used to mine
alert that is signed by a different private key is considered both bitcoins and namecoins. Bitcoin and Namecoinn networks
invalid [27]. It is worth pointing out that holding alerts private do not interact and they have separate blockchains, however
key by a single entity makes Bitcoin not a fully decentralized merged mining technology is possible, where miners can
payment system as argued by [28]. submit the same hash solution to both networks. Currently,
there are two ways to get an address in .bit domain [35], [36]:
F. File System and Database 1) Namcoin mining which is identical to Bitcoin mining.
Table II gives an outline of the le system and the database 2) Get Namecoins through exchanging them with at
structure maintained by fully compliant Bitcoin clients [29]. currencies or bitcoins.


When Bitcoin client runs, it sends HTTP requests to public Litecoin uses different hashing algorithm and accelerates
web services to determine its own external routable IP address. the transaction rate compared to Bitcoin. In Litecoin, a new
Then it exchanges its IP address with the connected nodes. block is generated on average every 2.5 minutes versus 10
Figure 3 depicts a owchart of the processes that take place minutes the block generation rate in Bitcoin. The speed up
once Bitcoin application starts [30], [31], [32], [33], [34]. of coin generation is achievable by lowering the difculty
of mining. This feature makes Litecoin more suitable when
The following are the peer discovery mechanisms used to transferring a large number of small-value transactions that
initiate connection to the Bitcoin network: are required to be nalized quickly. In contrast, Bitcoin is
a well-suited for higher transaction values since in Bitcoin
1) Peers database: if the node has run Bitcoin client transactions are handled at a slower rate [37].
before, it looks into its own database for the stored
peers IP addresses along with their last connection Another difference between Bitcoin and Litecoin is that
time. Litecoin uses scrypt as a proof-of-work function where specic

File Description
blocks/blk*.dat The block chain in network format, blk*.dat les are Berkeley
Database les and these les store the blockchain itself.
blocks/index/*.sst A block LevelDB database index that improves/speed up block in-
formation retrieval at the cost of more storage space usage. Indexes
provide rapid lookups and efcient access to a database table without
searching the whole table on every single access.
chainstate/*.sst A LevelDB database stores data about unspent transactions, and can
be generated from the block data using re-index command line option.
Needed for new incoming blocks and transactions validation, without
this database validation should be done through a full blockchain scan.
blocks/rev*.dat Used in case of block chain reorganization for reversing/rolling back
the chainstate.
peers.dat A database of peers IP addresses and their connection time.
wallet.dat Used to keep records of users accounts, addresses and their associated
public and private keypairs, and the bitcoins that the owner of the
wallet has spent or received.





Fig. 3. Bitcoin Initialization

scrypt parameters values are chosen to make the mining numbers where such chains have benecial applications in
process feasible and cheap for Litecoin users who run the number theory.
full client. Additionally, modern GPUs with sufcient amount
Three types of prime chains are used in Primecoin i.e., the
of memory can also mine litecoins, since scrypt hashing
Cunningham chains both rst and second types and bi-twin
algorithm does not merely depend on arithmetic operations
Chains. Moreover, Fermat test and Euler-Lagrange-Lifchitz
carried by powerful computers but it also needs quick access to
test are used for difculty tuning since depending on the length
enough memory space. However, Litecoin is more vulnerable
of the prime chain is not efcient and it becomes infeasible in
to attacks due to resale value of CPUs, GPUs and FPGAs
the long run.
which are used for Litecoin mining.
In Primecoin, a proof-of-work is considered valid if the
A second downside in Litecoin system is that if the number fractional length, which can be calculated using Fermat test,
of transactions increases rapidly, the computational power of the generated prime chain is greater than or equal to the
needed to validate signatures will exceed the amount of time difculty. And to prevent blocks from using the same proof-
required to nd a valid proof-of-work, which violates the of-work, the origin of prime chain must be divisible by the
second requirement of the proof-of-work algorithm mentioned hash of the block [40], [41].
earlier. Furthermore, speeding up the block generation rate
resulted in adjusting the difculty roughly every 3.5 days (in
D. Bitcoin-Based Systems and Services
comparison with two weeks for Bitcoin) and this may lead,
under certain scenarios, to unstable difculty adjustment which Besides cryptocurrencies, several other systems leverage
breaks the aforementioned Scalable difculty requirement of Bitcoin protocol such as:
proof-of-work algorithm [38], [39].
1) Ripple: Without a bank or a bank account, Ripple
makes international payments and currency exchange
C. Primecoin
possible at the speed of the Internet [42].
Primecoin is the rst cryptocurrency that adds a real-world 2) Twister: Peer-to-peer microblogging service, built us-
value to the mining algorithm. Primecoin presents a proof- ing both Bittorrent and Bitcoin technologies [43],
of-work mechanism based on nding long chains of prime [44].

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