Cryptocurrencies, Blockchains, and Smart Contracts
Expert-curated Guides to the Best of CS Research
Research into cryptocurrencies has a decades-long pedigree in academia, but decentralized crypto-currencies (starting with Bitcoin in 2009) have taken the world by storm. Aside from being a payment mechanism “native to the Internet,” the underlying blockchain technology is touted as a way to store and transact everything from property records to certificates for art and jewelry. Much of this innovation happens in the broader hobbyist and entrepreneurial communities (with increasing interest from established industry players); Bitcoin itself came from outside academia. Researchers, however, have embraced cryptocurrencies with gusto and have contributed important insights.
Here we have selected three prominent areas of inquiry from this young field. Our selections focus on relevance to practitioners and avoid areas such as scalability that are of interest primarily to cryptocurrency designers. Overall, the research not only exposes important limitations and pitfalls of the technology, but also suggests ways to overcome them.
ANONYMITY, PRIVACY, AND CONFIDENTIALITY
Meiklejohn, S., Pomarole, M., Jordan, G., Levchenko, K., McCoy, D., Voelker, G. M., Savage, S. 2013.
A fistful of Bitcoins: characterizing payments among men with no names. In Internet Measurement Conference: 127-140; https://www.usenix.org/system/files/login/articles/03_meiklejohn-online.pdf.
Bitcoin exists in a state of tension between anonymity (in the sense that real identities are not required to use the system) and traceability (in that all transactions are recorded on the blockchain, which is a public, immutable, and global ledger). In practice, the privacy of vanilla Bitcoin comes from obscurity: users may create as many addresses as they like and shuffle their coins around, even creating a new address for each transaction. But this paper demonstrates that “address clustering” can be very effective, applying a combination of heuristics to link together all the pseudo-identities controlled by an individual or entity.
Anonymity in cryptocurrencies is a matter of not just personal privacy, but also confidentiality for enter-prises. Given advanced transaction graph analysis techniques, without precautions, the blockchain could easily reveal cash flow and other financial details.
Sasson, E. B., Chiesa, A., Garman, C., Green, M., Miers, I., Tromer, E., Virza, M. 2014.
Zerocash: decentralized anonymous payments from Bitcoin. IEEE Symposium on Security and Privacy; http://zerocash-project.org/media/pdf/zerocash-extended-20140518.pdf.
There are many different proposals for improving the privacy of cryptocurrencies. These range from Bitcoin-compatible methods of “mixing” (or “joining”) coins with each other, to designs for entirely new crypto-currency protocols that build in privacy from the beginning. Perhaps the most radical proposal is Zerocash, an alternative cryptocurrency design that uses cutting-edge cryptography to hide all information from the blockchain except for the existence of transactions; each transaction is accompanied by a cryptographic, publicly verifiable proof of its own validity. Roughly, the proof ensures that the amount being spent is no more than the amount available to spend from that address. The paper is long and intricate, and the underlying mathematical assumptions are fairly new by cryptographic standards. But this fact itself is food for thought: to what extent does the security of a cryptocurrency depend on the ability to comprehend its workings?
ENDPOINT SECURITY
Turning to security, the Achilles’ heel of cryptocurrencies has been the security of endpoints, or the devices that store the private keys that control one’s coins. The cryptocurrency ecosystem has been plagued by thefts and losses resulting from lost devices, corrupted hard drives, malware, and targeted intrusions. Unlike fiat currencies, cryptocurrency theft is instantaneous, irreversible, and typically anonymous.
Eskandari, S., Barrera, D., Stobert, E., Clark, J. 2015.
A first look at the usability of Bitcoin key management.
Workshop on Usable Security;
http://users.encs.concordia.ca/~clark/papers/2015_usec.pdf.
This paper studies six different ways to store and protect one’s keys, and evaluates them on 10 different criteria encompassing security, usability, and deployability. No solution fares strictly better than the rest. Users may benefit considerably from outsourcing the custody of their keys to hosted wallets, which sets up a tension with Bitcoin’s decentralized ethos. Turning to Bitcoin clients and tools, the authors find problems with the metaphors and abstractions that they use. This is a ripe area for research and deployment, and innovation in usable key management will have benefits far beyond the world of cryptocurrencies.
SMART CONTRACTS
One of the hottest areas within cryptocurrencies, so-called smart contracts are agreements between two or more parties that can be automatically enforced without the need for an intermediary. For example, a vending machine can be seen as a smart contract that enforces the rule that an item will be dispensed if and only if suitable coins are deposited. Today’s leading smart-contract platform is called Ethereum, whose blockchain stores long-lived programs, called contracts, and their associated state, which includes both data and currency. These programs are immutable just as data on the blockchain is, and users may interact with them with the guarantee that the program will execute exactly as specified. For example, a smart contract may promise a reward to anyone who writes two integers into the blockchain whose product is RSA-2048— a self-enforcing factorization bounty!
Luu, L., Chu, D., Olickel, H., Saxena, P., Hobor, A. 2016.
Making smart contracts smarter.
In ACM SIGSAC Conference on Computer and Communications Security: 254-269; https://dl.acm.org/citation.cfm?id=2978309.
Unfortunately, expressive programming languages are hard to reason about. An ambitious smart contract called The DAO suffered a theft of an estimated $50 million thanks to a litany of security problems. (Ultimately, this theft was reversed by a controversial networkwide “hard-fork” upgrade.) The authors study four classes of security vulnerabilities in Ethereum smart contracts, and build a tool to detect them based on a formalization of Ethereum’s operational semantics. They find that thousands of contracts on the blockchain are potentially vulnerable to these bugs.
Clark, J., Bonneau, J., Felten, E.W., Kroll, J.A., Miller, A. and Narayanan, A. 2014.
On decentralizing prediction markets and order books. Workshop on the Economics of Information Security; http://www.econinfosec.org/archive/weis2014/papers/Clark-WEIS2014.pdf.
If smart-contract technology can overcome these hiccups, it could enable decentralized commerce—that is, various sorts of markets without intermediaries controlling them. This paper studies how one type of market—namely, a prediction market—could be decentralized. Prediction markets allow market participants to trade shares in future events (such as “Will UK initiate withdrawal from the EU by 2017?”) and turn a profit from accurate predictions. In this context the authors grapple with various solutions to a prominent limitation of smart contracts: they can access only data that is on the blockchain, but most interesting data lives outside it. The paper also studies decentralized order books, another ingredient of decentralized markets.
OVERCOMING THE PITFALLS
Cryptocurrencies implement many important ideas: digital payments with no central authority, immutable global ledgers, and long-running programs that have a form of agency and wield money. These ideas are novel, yet based on sound principles. Entrepreneurs, activists, and researchers have envisioned many powerful applications of this technology, but predictions of a swift revolution have so far proved unfounded. Instead, the community has begun the long, hard work of integrating the technology into Internet infrastructure and existing institutions. As we have seen, there are pitfalls for the unwary in using and applying cryptocurrencies: privacy, security, and interfacing with the real world. These will be fertile areas of research and development in the years to come.
Arvind Narayanan is an assistant professor of computer science at Princeton. He leads a research team investigating the security, anonymity, and stability of cryptocurrencies as well as novel applications of blockchains. He co-created a Massive Open Online Course as well as a textbook on Bitcoin and crypto-currency technologies. Narayanan also leads the Princeton Web Transparency and Accountability Project to uncover how companies collect and use our personal information. His doctoral research showed the fundamental limits of de-identification, for which he received the Privacy Enhancing Technologies Award.
Andrew Miller is an Assistant Professor of Computer Science at the University of Illinois at Urbana-Champaign, and previously received his Ph.D. from the University of Maryland. He has studied crypto-currencies since 2011, and has authored scholarly papers on a wide range of original research, including new proof-of-work puzzle constructions, programming languages for block chain data structures, and peer-to-peer network measurement and simulation techniques. He is an Associate Director of the Initiative for Cryptocurrencies and Contracts (IC3) at Cornell and an advisor to the Zcash project.