On Offline Payments with Bitcoin

Bitcoin [2] is a decentralized digital currency which relies neither on banks nor on any other central authority for issuing of coins or transaction verification. Currently, Bitcoin experiences enormous success driven by large interest from users, politics, but also by speculation. Particularly, despite being conjured to be a giant bubble, the value of a bitcoin increased from USD $5 in May 2012 to temporarily over USD $1,200 in December, and fluctuating between USD 500$ and USD 800$ since then. According to coinmap.org, as of February 2014 there are at least over 3000 shops, hotels, bars or even medical practices worldwide that accept local Bitcoin payments. This is an increase of 2000 locations over the last 3 month and not including online-shops or online-services. The two most important challenges of digital cash, explicit and undeniable ownership of coins and double-spending prevention, are addressed in Bitcoin by means of asymmetric cryptography and a distributed time-stamping service based on proof-of-work (PoW). Users of the Bitcoin network own addresses in form of asymmetric key pairs. To spend bitcoins, a user issues a transaction that, amongst others, includes a signature of the sender, the amount and the address (public key) of the receiver. All transactions are committed to the Bitcoin network and recorded in a public transaction history known as the blockchain. Building the blockchain requires solving cryptographic puzzles which is computationally hard to perform, but easy to verify. Special Bitcoin clients, called miners, are working on integration of new transactions into the blockchain, and get awarded with bitcoins as soon as they discover a new valid block. Regular Bitcoin clients can track the transaction history to ensure that the bitcoin they are going to receive has never been spent before. An important characteristic of the Bitcoin system is that clients require online access to the blockchain for a certain amount of time to be able to verify any transaction. However, these requirements render Bitcoin not suitable for offline payment scenarios, where neither the sender nor the receiver have connection to the Bitcoin network. Furthermore, immediate payments with Bitcoin, where transactions have to be accepted or rejected immediately, are insecure [1] even in online settings.