Author

Shruti Sharma

Publication Date

Fall 2015

Degree Type

Master's Project

Department

Cybernetic Systems

Abstract

Bitcoin is a decentralized peer-to-peer electronic currency wherein all the payments are sent from one transactor to another directly [1]. Financial institutions are not present in the protocol, hence, there are lower processing fees. The distributed nature provides resilience to Bitcoin transactions, and it operates on mathematical principles and cryptographic proofs. As per Bitcoin generation algorithm, the number of bitcoins in existence will never surpass 21 million, which will lead to deflation and encourage hoarding. In this project, we have implemented a Bitcoin-like currency in order to mitigate the issue of deflation [7]. The idea for our protocol is based on the US Federal reserve, which is the gatekeeper of the US economy and promotes the stability of prices by preserving the purchasing power of dollar over a long period of time. Our approach to fix the Bitcoin deflation issue is by creating BitFed, a centralized authority that decides the rate of issuance of bitcoins each day while otherwise maintaining the decentralized nature of protocol. Specifically, the BitFed plays no role in verifying transactions. In order to prove that this approach is viable, we have developed a simulator in Java that emulates the Bitcoin protocol with the BitFed and tested it by introducing cheaters in the network. The system has no forks when majority of the miners are good (more than 51 percent). After this we see several forks in the system, since the network is controlled by cheaters.

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