Transaction Model of Cryptocurrency System in the Same Bank

Limit of money

To ensure the safety of the currency and the efficiency of the system, systems often record the expiration date of the currency. After being issued, electronic money must be returned to the bank before the expiration date.

Other information

This is additional information intended to ensure the safety and reliability of the cryptocurrency, prevent fraud and counterfeiting of the cryptocurrency, and detect violations (if any). In many systems, this information helps to trace the identity of users who commit fraudulent behavior in cryptocurrency payments.

The information on the cryptocurrency is signed by the bank using its private key. Any user can verify the validity of the coin using the bank's public key.

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3.1.3 Classification of cryptocurrencies

Cryptocurrencies come in two flavors: anonymous and identifiable.

1) Anonymous money

Anonymous money does not reveal the user's identity information, the system relies on the blind signature scheme presented above to anonymize the user. The anonymity of cryptocurrency is similar to that of regular cash. Anonymous cryptocurrency is withdrawn from an account, can be spent or transferred to others without leaving a trace.

There are many types of anonymous money, some are anonymous to the seller, but not to the bank. Some are anonymous to everyone, completely anonymous.

2) Fiat money

Cryptocurrency reveals the identity of its users. It is similar to a credit card, allowing banks to keep a track of the money as it moves.

Each of the above currencies is divided into two forms: online and offline.

- Online : means it is necessary to interact with a third party to control the transaction.

- Offline : means that transactions can be controlled without directly involving a third party.

3.1.4 Properties of cryptocurrency

The biggest difference between cryptocurrency and regular cash is that cryptocurrency is simply a series of numbers represented in a format that computers can understand and exchanged through a computer network. Because it is just a series of numbers, digital currency is very easy to copy, which leads to two situations: first, digital currency can be counterfeited (by generating a series of numbers in the exact format of the currency issued by the bank). Second, the currency can be copied for multiple uses (double-spending).

From this characteristic, Tatsuaki Okamoto and Kazuo Ohata came up with six basic characteristics of cryptocurrencies:

1) Portability

The security of cryptocurrencies does not depend on any physical conditions. This is a prerequisite for transferring money online.

2) Security

This property is capable of preventing attempts to duplicate the coin by multiple use or counterfeiting.

3) Privacy

This property is intended to protect users from all prying eyes, or in other words, no one can trace or connect the relationship between the user and the spending and transactions that he has made. This property can be seen very clearly in cash transactions. Once the payment has been made, it is very difficult to prove who previously owned that amount of money.

4) Offline payment properties

Offline payments mean that the transaction between the user and the provider can take place without the involvement of a third party (e.g. a bank). In other words, the provider can verify the validity of the digital currency itself.

5) Transferability

Users can transfer cryptocurrency (the right to use) to each other. This property makes spending cryptocurrency really similar to spending regular cash. However, the system also has to solve some problems such as:

The data size increases with each transfer because this is the information that needs to be stored. The simplest solution is to limit the maximum number of transfers allowed.

Detecting counterfeiting and spending a coin multiple times may be too late, when the coin has already been transferred many times.

Other issues such as: money laundering, ...

6) Divisibility

Users can divide their cryptocurrency into smaller pieces of payment value, provided that the total value of the smaller pieces is equal to the value of the original cryptocurrency.

3.2 PROTOCOLS WITH CRYPTOCURRENCIES

Based on the characteristics of cryptocurrencies, the cryptocurrency payment system has three basic protocols: withdrawal protocol, payment protocol (also known as settlement), and deposit protocol.

Depending on whether the buyer and seller use the service at the same bank or at different banks (interbank), we can divide it into payment protocols within the same bank and interbank to ensure effective payment methods.

3.2.1 Same-bank payment protocols

Suppose Alice and Bob both use the same bank. Alice wants to buy something (say a book Q worth $100) from Bob . The protocol consists of the following three phases:

Bank

1. Withdrawal

3. Deposit

2. Payment

Alice Bob

Figure 3.1: Transaction model of the electronic money system within the same bank

1) Withdrawal Protocol

- Alice creates a cryptocurrency C consisting of a serial number and the value of C (for example $100).

- Alice asks the bank to sign “blindly ” on C.

- If the protocol is successfully signed, the bank will deduct $100 from Alice 's account.

and returns the blindly signed coin to Alice .

2) Payment Protocol (Spending)

- Alice transfers the bank-signed coin C to Bob and requests the book Q .

- Bob checks the signature on C (using the bank's public key). If the signature is invalid, Bob terminates the protocol.

3) Deposit Protocol

- Bob takes coin C from Alice and deposits it in the bank.

- The bank authenticates the signature on the coin C .

 If the signature is valid, the bank checks whether C has been spent before.

 If C has not been spent, the bank adds $100 to Bob 's account .

- If the deposit is successful, Bo b will send the book Q to Alice.

Comment:

It is “difficult” for Bob to know which account C came from. When Bob deposits C into his account, it is also difficult for the bank to know that the coin was received from Alice because it was signed “ blindly ”. Thus, the cryptocurrency C does not leave a trace of who “ spent ” it.

3.2.2 Interbank payment protocols

In the case of interbank transactions (parties to the transaction use services at different banks), a “group blind” signature is used for the interbank common currency.

Suppose Alice is a customer of bank A, Bob is a customer of bank B.

B. Alice needs to pay the merchant Bob. The protocol goes like this:

1. Setup

Bank A Bank B

2. Withdraw 4. Deposit

3. Payment

Alice Bob

Figure 3.2: Transaction model of interbank electronic money system

1) Setup

Banks in a group, the group leader is the central bank. If a bank wants to join the group, it just needs to perform the join protocol with the group leader .

2) Withdrawal Protocol

- First Alice creates a cryptocurrency T with a serial number and denomination.

- Alice asks bank A to sign a “blind group” to T.

- Bank A signs a blind group to T and withdraws the corresponding amount from Alice's account.

Alice now owns the T coin which is valuable across the banking group.

3) Payment Protocol (Spending)

- Alice gives Bob money T that has the interbank “group” signature.

- Bob uses the group's public key to verify and authenticate the interbank “group” signature on T.

4) Deposit Protocol

- If the above steps are completed, Bob sends money T to bank B. Bank B receives it because T is the “common” currency in the interbank market.

- Bank B proceeds to authenticate the signature on T. Note that B does not need to know who A is when doing this, but only needs to use the group's public key.

- Bank B checks whether T has been spent through the list of spent coins at the bank, to avoid spending T twice.

- If the check is successful, bank B deposits the amount T into Bob's account.

- Bob sends goods to Alice.

3.3 SOME CRYPTOCURRENCY SCHEMATICS

3.3.1 CHAUM-FIAT-NAOR diagram

3.3.1.1 Diagram

The Chaum 1 - Fiat 2 - Naor 3 electronic money system scheme is anonymous . To ensure the anonymity of the currency, the scheme uses RSA “ blind signature ” . In which the secret key is a , the public key is (n , b) , the two functions f , g are “collision-free”.

Each user has an account number u , the bank keeps a count v associated with the account number u (counting the number of currency units U i created), the bank relies on u to identify fraudsters.

Figure 3. 3: Fiat-Chaum-Naor diagram