1. Introduction

2. Digital transactions

3. The proposed solution

4. Proof-of-work

5. Running the network

6. Transaction Incentive

7. Reclaiming the disk-space

8. Simplified settlement verification

9. Combining and splitting value

10. Privacy of the transactions

11. Calculations

12. References

Vic Coin is a purely peer-to-peer version of digital currency that would allow online Settlements to be sent directly from one party to another without going through a Central counter party. Part of the solution lies with the digital signatures, but the main benefits are lost if a central counter party is still required to prevent public viewing. Vic Coin suggest a solution to the public-viewing problem using a peer-to-peer network. The system network time stamps all transactions by hashing Vic Coin into an ongoing chain of hash-based proof-of-work to form a record that cannot be changed without doing the proof-of-work all over again. The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power. As long as master nodes that are not cooperating to attack the network control a majority of CPU power, Vic Coin will generate the longest chain and outpace attackers. The network itself requires minimal structure. Messages are broadcast on a best effort basis, and master nodes can leave and rejoin the network at will, accepting the longest proof-of-work chain as proof of what happened while Vic Coin were gone.

Introduction

Internet commerce has come to a point of relying almost exclusively on financial institutions serving as trusted third parties to process electronic settlements. Although the system performs adequately for most transactions, it still struggles with the inherent weaknesses of relying on then trust-based model. Fully international transactions are not actually possible, leaving financial institutions to keep on mediating disputes. The process of mediation breeds more transaction costs and public viewing, limiting the minimum possible transaction size and increasing the possibility the public to easily view the transactions. There is also a bigger risk in the loss of ability to make international settlements for international services. With the possibility of settlement, the need for trust spreads. Merchants must be wary of Vic Coin customers, asking clients for additional details than would have otherwise needed. A small percentage of fraud is accepted as unavoidable. These costs and settlement uncertainties can be avoided in person by using physical currency, but there is no mechanism existing that can make settlements over a communications channel without a trusted party. What is required is a digital settlement system based on cryptographic proof instead of trust, enabling any two willing parties to transact directly with each other over the internet without the need for a trusted third party. Transactions that are computationally difficult to reverse would protect sellers from fraud, and routine escrow mechanisms can be earnestly implemented to protect the buyers. In this paper, Vic Coinoffer a solution to the public-viewing problem using a peer-to-peer distributed times tamp server to generate computational proof of the chronological order of transactions. The system is secure as long as honest master nodes collectively control more CPU power than any cooperating group of attacker master nodes.^[1]

Digital transactions

A digital coin is defined as a chain of digital signatures. Each owner transfers the coin to the next by digitally signing a hash of the previous transaction and the public key of the next owner and adding these to the end of the coin. A payee can verify the signatures to verify the chain of ownership. With this approach, the payee is not able to ascertain that the transaction has not been publicly viewed by people accessing the internet. A common solution is to eliminate the trusted central counter party, or mint, that checks every transaction for double spending by introducing anonymization technology. In block chain technology, the coin is returned to the mint after every transaction for issuing a fresh new coin because only coins issued directly from the mint are trusted not to have been double spent. The problem with this solution is that the fate of the entire money system depends on the company running the mint, with every transaction having to go through the mint, just like a bank. The transactions can also be viewed by anybody with internet connectivity. Vic Coin have to find a mechanism for the payee to know that the previous owners of the coin did not sign any earlier transactions. In our case, the earliest transaction is the most significant; attempts to double spend in later transactions do not matter a lot. The only way to confirm the absence of a transaction is to be aware of all transactions. In the mint-based model, the mint was aware of all transactions and decided which arrived first. To accomplish this without a trusted party, transactions must be publicly announced, and need a system for participants to agree on a single history of the order in which was received. The payee needs proof that at the time of each transaction, the majority of master nodes agreed it was the first received^[2]

The proposed solution

Vic Coin propose a solution that starts with a time stamp server. A time stamp server starts with taking a hash of a block of items to be time stamped and widely publishing the hash, such as in a newspaper or Usenet post. The time stamp provides assurance that the data in question must have existed at the time, in order to get into the hash. Each time stamp includes the previous time stamp in its hash, forming a chain, with each additional time stamp in forcing the ones before it.^[3]

Proof-of-work

In order for Vic Coin to implement a distributed time stamp server on a peer-to-peer basis, Vic Coin will have to use a proof- of-work system same as Adam Back's Hash-cash, instead of newspaper or Use net posts. The proof-of-work entails scanning for a value that when hashed, for instance with SHA-256, the hash starts with a number of zero bits. The average work needed is exponential in the number of zero bits required and can be ever if lied by executing a single hash. In this time stamp network, Vic Coin implement the proof-of-work by incrementing announce in the block until a value is realized that gives the block's hash the required zero bits. Once the CPU effort has been expended to make it satisfy the proof-of-work, the block cannot be altered without re doing the work. As later blocks are chained after it, the work to change the block would include re doing all the blocks after it. The problem of determining misrepresentation in majority decision making is also solved by proof-of-work. If the majority were based on one-IP-address-one-vote, it could be subverted by anyone capable of allocating many IPs. Proof-of-work is basically one-CPU-one-vote. The majority decision is represented by the longest chain, which has the greatest proof-of-work effort invested init. If a majority of CPU power is controlled by honest master nodes, the honest chain will grow the fastest and outpace any competing chains. To modify a past block, an attacker would have to read other proof-of-work of the block and all blocks after it and then catch up with and surpass the work of the honest nodes. Vic Coin will show later that the probability of as lower attacker catching up diminishes exponentially as subsequent blocks are added. To compensate for increasing hardware speed and varying interest in running nodes overtime, the proof-of-work difficulty is determined by a moving average targeting an average number of blocks per hour. Ifgenerated too fast, the difficulty increases.^[4]

Running the network

The following are the steps which are involved in running the network. 1) New transactions are broad cast to all master nodes. 2) Each master node collects new transactions into a block. 3) Each master node works on finding a difficult proof-of-work for its block. 4) When anode finds a proof-of-work, it broadcasts the block to all nodes. 5) The master nodes accept the block only if all transactions in it areal id and not already spent. 6) The master nodes express the acceptance of the block by working on creating the next block in the chain, using the hash of the accepted block as the previous hash. With regard to the master nodes, the longest chain is the correct one. Hence, the master nodes will always keep on working towards extending it. When two master nodes broad cast different versions of the next block simultaneously, some master nodes may receive one or the other first. Therefore, the master nodes work on the first one received, but save the other branch in case it becomes longer. The tie will be broken when the next proof- of-work is found and one branch becomes longer, the master nodes that were working on the other branch switch to another longer one. New transaction broadcasts do not necessarily need to reach all master nodes. As long as reach many master nodes, and will get into a block before long. Block broad casts a real so tolerant of dropped messages. If a master node does not receive a block, it will request it when it receives the next block and realizes it missedone.^[5]

Transaction Incentive

Conventionally, the first transaction in a block is special transactions that starts a new coin owned by the creator of the block adding an incentive for master nodes to start supporting the network, and provides away to initially distribute coins into circulation, since there is no central authority to issue at the creator. The steady addition of a constant of amount of new coins is analogous to gold miners expending resources to add gold to circulation. In Vic Coin case, it is CPU time and electricity that is expended. The incentive can as well be funded through transaction fees. If the output value of a transaction is less than its input value, the difference is a transaction fee that is added to the incentive value of the block containing the transaction. Once a predetermined number of coins have entered circulation, the incentive can transition entirely to transaction fees and be completely inflation free. The incentive may help encourage master nodes to stay honest. If a greedy attacker is able to assemble more CPU power than all the honest master nodes, the attacker would have to choose between using it to defraud people by stealing back his payments, or using it to generate new coins. He ought to find it more profit able to play by the rules, such rules that favour the attacker with more new coins than everyone else combined, than to undermine the system and the validity of his own wealth.^[6]

Reclaiming the disk-space

If the latest transaction in a coin is buried under enough blocks, the spent transactions before it can be discarded to save disk space. To facilitate this without breaking the block's hash, transactions are hashed in a Merkle Tree, with only the root included in the block's hash. Old blocks can then be compacted by stubbing off branches of the tree. The interior hashes do not need to be stored. A block header with no transactions would be about 80 bytes. If Vic Coin assume blocks are generated every 10 minutes, 80 bytes* 6* 24* 365 =4.2MB per year. With computer systems typically selling with 2GB of RAM as of 2008, and Moore's Law predicting current growth of 1.2 GB per year, storages should not be a problem even if the block headers must be kept in a memory.^[7]

Simplified settlement verification

Settlements can be verified easily without running a full network node. A user only needs to keep a copy of the block headers of the longest proof-of-work chain, which he can obtain by querying network nodes until he is convinced he has the longest chain, and obtain the Merkle branch linking the transaction to the block it is time stamped in. He cannot check the transaction for himself, but by linking it to a place in the chain, he can see that a network node has accepted it, and blocks added after it further confirm the network has accept edit. Therefore, the verification is reliable as long as honest master nodes control the network, although it is more vulnerable if the network is over powered by an attacker. While network master nodes can verify transactions for themselves, the simplified method can be fooled by an attacker's fabricated transactions for as long as the attacker can continue to overpower the network. One strategy to protect against this would be to accept alerts from network master nodes when detect an invalid block, prompting the user's software to download the full block and alerted transactions to confirm the inconsistency. Businesses that receive frequent payments will probably still want to run the own nodes for more independent privacy, security and quicker verification.^[8]

Combining and splitting value

Although it would be possible to handle coins individually, it would be unwieldy to make a separate transaction for every cent in a transfer. To allow value to be split and combined, transactions contain multiple inputs and outputs. Normally there will be it her a single input from a larger previous transaction or multiple inputs combining smaller amounts, and at most two outputs one for the payment, and one returning the change, if any, back to the sender. It should be noted that fan-out, where a transaction depends on several transactions, and those transactions depend on many more, is not a problem here. There is never the need to extract a completest and alone copy of transaction’s history.

Privacy of the transactions

In the traditional banking system, a level of privacy is achieved by limiting access to information to the transacting parties and the trusted third party. The requirement to announce all transactions publicly precludes this system, but privacy can still be achieved by breaking the flow of information in another place by keeping public keys anonymous. The public can see that someone is sending an amount to someone else, but without information linking the transaction to anyone. This is similar to the level of information released by stock exchanges, where the time and size of individual trades, the "tape", is made public, but without telling who the parties were.

Calculations

Let us consider a scenario of an attacker trying to generate an alternate chain faster than the honest chain. Even if the attacker accomplished, it does not leave the system open to arbitrary changes, such as creating value out of thin air or taking money that never belonged to the attacker. Master nodes will not accept an invalid transaction as settlement, and honest nodes will never accept a block containing master nodes. An attacker can only try to change one of his own transactions to take back money he recently spent. The competition between the honest chain and an attacker chain can be characterized as a Binomial Random Walk. The success event is the honest chain being extended by one block, increasing its lead by+1, and the failure even tis the attacker's chain being extended by one block, reducing the gap by-1. The probability of an attacker catching up from a given deficits analogous to a Gambler's Ruin problem. Suppose a gambler with unlimited credit starts at a deficit and plays potentially an infinite number of trials to try to reach break-even. Vic Coin can calculate the probability he ever reaches break even, or that an attacker ever catches up with the honest chain, as follows p= probability an honest node finds the next block q= probability the attacker finds the next block qz= probability the attacker will ever catch up from z blocks behind

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