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TECH5300 Bitcoin Case Study 1 Sample

Your Task

This assessment is to be completed individually. In this assessment, you will evaluate the purpose, structure, and design of base layer 1 of the Bitcoin network, which provides the security layer.

Assessment Description

This assessment aims to evaluate your ability to analyse, evaluate, and critically assess the purpose, structure, and design of the base layer 1 of the Bitcoin network, which serves as the security layer. Additionally, you are required to explore the principles and significance of public-key cryptography in the context of Bitcoin transactions. By completing this assessment, you will demonstrate your proficiency in comprehending complex concepts, conducting in-depth research, and presenting well-structured arguments.

Case Study

Case Study Scenario: You have been appointed as a Bitcoin consultant for a financial institution seeking to explore the potential of utilising Bitcoin as part of their operations. Your task is to evaluate the purpose, structure, and design of the Bitcoin layer 1 network, with a particular focus on its security layer. Furthermore, you are required to analyse the role and impact of public-key cryptography in securing Bitcoin transactions.

Your Task: In this case study, you are required to prepare a detailed report addressing the following aspects:

1. Evaluation of the Purpose, Structure, and Design of Bitcoin Layer 1 Network:

a. Analyse the purpose and significance of the base layer 1 in the Bitcoin network, emphasising its role as the security layer.

b. Evaluate the structural components of the Bitcoin layer 1 network, including its decentralised nature, consensus mechanism, and transaction processing.

c. Assess the design principles and mechanisms employed within the Bitcoin layer 1 network to ensure security, immutability, and transaction verification.

2. Exploration of Public-Key Cryptography in Bitcoin Transactions:

a. Explain the fundamental principles of public-key cryptography and its relevance in securing Bitcoin transactions.

b. Analyse the mechanisms and algorithms used in public-key cryptography to ensure transaction verification, non-repudiation, and confidentiality in the Bitcoin network.

c. Evaluate the strengths and weaknesses of public-key cryptography within the context of Bitcoin transactions, considering factors such as key management, quantum resistance, and regulatory implications.

3. Evaluation of Security Challenges and Mitigation Strategies:

a. Identify and analyse the major security challenges and vulnerabilities associated with the Bitcoin layer 1 network, including potential attack vectors, double-spending, and transaction malleability.

b. Evaluate existing mitigation strategies and countermeasures employed to address these security challenges.

4. Future Outlook and Recommendations:

a. Discuss emerging trends, advancements, or potential challenges related to the Bitcoin layer 1 network and public-key cryptography.

b. Provide recommendations to the financial institution regarding the integration of the

Bitcoin layer 1 network and public-key cryptography into their operations, considering the benefits, risks, and potential mitigations.



"The Security, Cryptography, and Future Outlook of the Bitcoin Layer 1 Network. This in-depth examination explores the goal, composition, and architecture of the fundamental layer 1 network that underpins Bitcoin. For Assignment Help, It examines the use of public-key cryptography for transaction security, assesses security risks, and suggests defences. While offering tactical suggestions for handling the shifting market, the conversation gives insights into new trends and developments.

1. Evaluation of the Purpose, Structure and Design of Bitcoin Layer 1 Network

a. Purpose and significance of the base layer 1 in the Bitcoin network

The network's core architecture, which is primarily concerned with security, is Bitcoin's base layer 1. The Proof of Work (PoW) consensus process, aims to enable safe and decentralised transactions (Akbar et al., 2021). In order to validate transactions and add them to the blockchain, miners compete to solve challenging mathematical puzzles. This creates a tamper-resistant database. Due to its enormous processing capacity, this security mechanism has demonstrated resilience against threats, making Bitcoin very resistant to censorship and manipulation. Since its launch in 2009, the basic layer of Bitcoin has experienced uptime of over 99.98%, proving its reliability (Nguyen, 2019). The network's miners' dedication to network security is demonstrated by this astounding increase.

b. Structural components of the Bitcoin layer 1 network

Decentralisation, consensus through Proof of Work (PoW), and transaction processing are all embodied in the Layer 1 network of Bitcoin. Decentralisation is ensured via
the dispersion of global nodes, which improves security and resilience. PoW requires miners to validate transactions by solving complex puzzles. Every 10 minutes, blocks are created for transaction processing, placing security over speed (Kenny, 2019). This methodical pace provides immutability while limiting throughput. Layer 2 solutions balance speed, trust, and security at Layer 1. Layer 1 of Bitcoin emphasises decentralisation, PoW consensus, and purposeful processing, reaffirming its leadership position in the cryptocurrency industry (Tatos et al., 2019).

c. Design principles and mechanisms

The layer 1 network for Bitcoin is carefully designed to provide security, immutability, and transaction verification. Decentralisation enhances security and prevents isolated failures. In order to add blocks, Proof of Work (PoW) uses difficult solutions (Jabbar et al., 2020). This collective effort maintains data accuracy by resisting retroactive alterations. The consensus of the nodes prevents unauthorised acts and double spending by verifying transactions before they are included in blocks. These ideas strengthen the first layer of Bitcoin, which is crucial to its function as a reliable store of value and digital money, encapsulating security, historical integrity, and reliable transaction validation (Jacobetty and Orton-Johnson, 2023).

2. Exploration of Public-Key Cryptography in Bitcoin Transactions

a. Fundamental principles of public-key cryptography

Asymmetric encryption and the generation of a public-private key pair are the two underlying tenets of public-key cryptography. In this system, a user creates two sets of keys: a public key that is widely disseminated and a private key that is kept secret (Aydar et al., 2019). Secure communication is made possible by the fact that messages encrypted with one key can only be decoded with the other. These concepts are essential for transaction security in the context of Bitcoin. Each user has their own set of keys. A transaction output is encrypted by the sender using the recipient's public key, the output can only be decrypted using the recipient's private key. This makes sure that the money can only be accessed by the legitimate owner. The private key must be kept secret at all times; if it is compromised, the related cash will also be lost (Rezaeighaleh and Zou, 2019).

b. Mechanisms and algorithms used in public-key cryptography

The Bitcoin network uses a variety of techniques and algorithms, including public key cryptography, to guarantee transaction verification, non-repudiation, and secrecy.

Transaction Verification: Digital signatures and cryptographic hashes are used in Bitcoin. A transaction is signed with the sender's private key when a user starts it, yielding a distinctive digital signature (Krishnapriya and Sarath, 2020). The sender's public key is then used by nodes in the network to validate the signature. The transaction is regarded as confirmed and can be uploaded to the blockchain if the signature is legitimate.

Non-Repudiation: Non-repudiation is provided through digital signatures (Fang et al., 2020). A transaction can be authenticated using the associated public key once it has been signed with a private key. This improves accountability by preventing senders from downplaying their role in the transaction.

Confidentiality: Public keys used to generate Bitcoin addresses maintain secrecy. The names behind addresses are fictitious, despite the fact that transactions are recorded on a public blockchain (Bernabe et al., 2019). The money linked to an address can only be accessed by individuals possessing the private key, protecting ownership privacy.

c. Strengths and weaknesses of public-key cryptography

- Strengths: With public-key cryptography, Bitcoin is more secure and private. It enables secure ownership verification and ensures confidentiality with digital signatures and bogus addresses (Guo and Yu, 2022). Without the need for a competent middleman, peer-to-peer transactions are also made easier. Furthermore, keys' cryptographic nature provides robust defence against brute-force attacks.

- Weaknesses: Key management is difficult because losing a private key means that money is lost forever. Furthermore, the security of public key cryptography depends on the complexity of certain mathematical puzzles, and potential future developments like quantum computers might undermine its security (Fernandez Carames and Fraga Lamas, 2020).

3. Evaluation of Security Challenges and Mitigation Strategies

a. Major security challenges and vulnerabilities

The Bitcoin network's first layer has security flaws and problems. When someone spends the same amount of Bitcoin twice, there is a danger of double-spending. Although the consensus system prevents it, a strong actor may launch a 51% assault, allowing for double spending (Hacken and Bartosz, 2023). Transaction malleability is a problem since it permits changes to IDs prior to confirmation, which might be confusing. It affects ID-dependent processes even while security isn't immediately compromised. Attacks called Sybils take advantage of decentralisation by clogging the network with phoney nodes and upsetting stability. Eclipses control transactions and isolate nodes (Salman, Al Janabi and Sagheer, 2023). These difficulties highlight the necessity of constant attack detection, protocol improvements, and a variety of decentralised nodes to maintain the Layer 1 security and integrity of Bitcoin.

b. Existing mitigation strategies

In order to resolve the security issues in the Bitcoin layer 1 network, existing mitigation tactics and remedies are used (Tedeschi, Sciancalepore and Di Pietro, 2022). The decentralised consensus process prevents double spending by making such assaults prohibitively costly and necessitating a majority of honest miners. Furthermore, miners choose to confirm transactions with larger fees, decreasing the appeal of double-spending. Segregated witness (SegWit) was introduced to address transaction malleability (Kedziora et al., 2023). SegWit increases block capacity and reduces vulnerability to malleability attacks by separating signature data from transactions.

Strong network topology and peer discovery techniques are used to defend against Sybil assaults, assuring connections with a variety of nodes rather than being dominated by a single party (Madhwal and Pouwelse, 2023). Eclipse attacks may be thwarted by selecting peers carefully, employing multiple points of connection, and monitoring network activity to look for malicious actors. In order to address these security issues, Bitcoin uses a mix of protocol upgrades, financial incentives, and network architecture, assuring the stability and dependability of its layer 1 network (Lin et al., 2022).

4. Future Outlook and Recommendations

a. Emerging trends, advancements, or potential challenges

New developments and trends in public-key cryptography and layer 1 of the Bitcoin network provide both opportunities and difficulties. Layer 2 scaling solutions like the Lightning Network seek to solve Bitcoin's scalability problems by enabling quicker, lower cost off-chain transactions while retaining the layer 1 network's security (Dasaklis and Malamas, 2023). On the other hand, the security of conventional public key cryptography is in danger from quantum computing, which may have an effect on Bitcoin. In order to address this danger and uphold the network's security, researchers are investigating quantum-resistant cryptographic methods (Akter, 2023).

b. Recommendations

Opportunities exist for integrating public-key cryptography and the Bitcoin layer 1 network into the operations of financial institutions, but this requires careful design. First, consider adopting Bitcoin for cross-border payments to take advantage of its efficient and borderless nature. Public key cryptography may be used to improve security by assuring encrypted communication and safe transactions (Dijesh, Babu and Vijayalakshmi, 2020). Uncertain laws, volatile markets, and security concerns like key management are risks, nevertheless. For minimising these risks, use risk management strategies to cope with price changes, give solid key management processes top priority to prevent losing access to money, and do in-depth due diligence on compliance requirements.

Consider introducing Bitcoin services gradually to reduce risks and stay current with market movements. Consult with compliance and blockchain experts if there are any issues. Overall, financial institutions may be prepared for success in the changing environment by developing a well-thought-out plan that finds a balance between the benefits of Bitcoin, encryption, and risk-reduction strategies (Ekstrand and Musial, 2022).  


The study of Bitcoin's Layer 1 network concludes by highlighting the importance of this network for security, decentralisation, and transaction verification. Public-key cryptography improves non-repudiation and secrecy. Although security issues still exist, the network's integrity is supported by current mitigating techniques including consensus mechanisms and network architecture. Future developments like quantum-resistant encryption and Layer 2 solutions present both possibilities and difficulties. Recommendations stress the integration of Bitcoin into financial institutions, led by strategic adoption and risk management, to ensure a strong basis for navigating the changing environment. 


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