Centralized digital currency

GoofyCoin Is about the simplest cryptocurrency we can imagine. There are just two rules of GoofyCoin. The first rule is that a designated entity, Goofy, can create new coins whenever he wants and these newly created coins belong to him. To create a coin, Goofy generates a unique coin ID uniqueCoinID that he’s never generated before and constructs the string “CreateCoin [uniqueCoinID]”. He then computes the digital signature of this string with his secret signing key. The string, together with Goofy’s signature, is a coin. Anyone can verify that the coin contains Goofy’s valid signature of a CreateCoin statement, and is therefore a valid coin. The second rule of GoofyCoin is that whoever owns a coin can transfer it on to someone else. Transferring a coin is not simply a matter of sending the coin data structure to the recipient — it’s done using cryptographic operations. Let’s say Goofy wants to transfer a coin that he created to Alice. To do this he creates a new statement that says “Pay this to Alice” where “this” is a hash pointer that references the coin in question. And as we saw earlier, identities are really just public keys, so “Alice” refers to Alice’s public key. Finally, Goofy signs the string representing the statement. Since Goofy is the one who originally owned that coin, he has to sign any transaction that spends the coin. Once this data structure representing Goofy’s transaction signed by him exists, Alice owns the coin. She can prove to anyone that she owns the coin, because she can present the data structure with Goofy’s valid signature. Furthermore, it points to a valid coin that was owned by Goofy. So the validity and ownership of coins are self-evident in the system.

Figure 1.10 GoofyCoin coin. Shown here is a coin that’s been created (bottom) and spent twice (middle and top). Once Alice owns the coin, she can spend it in turn. To do this she creates a statement that says, “Pay this coin to Bob’s public key” where “this” is a hash pointer to the coin that was owned by her. And of course, Alice signs this statement. Anyone, when presented with this coin, can verify that Bob is the owner. They would follow the chain of hash pointers back to the coin’s creation and verify that at each step, the rightful owner signed a statement that says “pay this coin to [new owner]”. To summarize, the rules of GoofyCoin are:

● Goofy can create new coins by simply signing a statement that he’s making a new coin with a unique coin ID.

● Whoever owns a coin can pass it on to someone else by signing a statement that saying, “Pass on this coin to X” (where X is specified as a public key)

● Anyone can verify the validity of a coin by following the chain of hash pointers back to its creation by Goofy, verifying all of the signatures along the way.

Of course, there’s a fundamental security problem with GoofyCoin. Let’s say Alice passed her coin on to Bob by sending her signed statement to Bob but didn’t tell anyone else. She could create another signed statement that pays the very same coin to Chuck. To Chuck, it would appear that it is perfectly valid transaction, and now he’s the owner of the coin. Bob and Chuck would both have valid-looking claims to be the owner of this coin. This is called a double-spending attack — Alice is spending the same coin twice. Intuitively, we know coins are not supposed to work that way. In fact, double-spending attacks are one of the key problems that any cryptocurrency has to solve. GoofyCoin does not solve the double-spending attack and therefore it’s not secure. GoofyCoin is simnple, and its mechanism for transferring coins is actually very similar to Bitcoin, but because it it is insecure it won’t cut it as a cryptocurrency.