Bitcoin on the Go: The Basics of Bitcoins and Blockchains
By Antony Lewis
()
About this ebook
“One of the few credible books I suggest when people ask ‘where can I learn about bitcoin?’―Zennon Kapron, Managing Director, Kapronasia (Review of The Basics of Bitcoins and Blockchains)
You’re an active, on-the-go person and need a condensed version of the Antony Lewis best-selling The Basics of Bitcoins and Blockchains? Now Bitcoin on the Go offers the same clear guide to this new currency and the revolutionary technology that powers it―just in a condensed format.
Bitcoin, Ethereum, and other cryptocurrencies. Gain an understanding of a broad spectrum of Bitcoin topics including the history of Bitcoin, the Bitcoin blockchain, and Bitcoin buying, selling, and mining. Learn how payments are made, and how to put a value on cryptocurrencies and digital tokens.
Blockchain technology. What exactly is a blockchain, how does it work, and why is it important? Bitcoin on the Go answers these questions and more. Learn about notable blockchain platforms, smart contracts, and other important facets of blockchains and their function in the changing cyber-economy.
Things to know before buying cryptocurrencies. Find trustworthy and balanced insights into Bitcoin investing and investing in other cryptocurrencies. Discover the risks and mitigations, learn how to identify scams, and understand cryptocurrency exchanges, digital wallets, and regulations.
Learn about:
- Blockchain technology and how it works
- Workings of the cryptocurrency market
- Evolution and potential impacts of Bitcoin and blockchains on global businesses
You’ve read The Bitcoin Standard, Blockchain Bubble or Revolution, the full version of The Basics of Bitcoins and Blockchains by Antony Lewis, or The Only Cryptocurrency Investing Book You'll Ever Need but you want to understand this new currency in a quick easy-to-read format. Pick up a copy of Bitcoin on the Go.
Antony Lewis
Antony Lewis became so interested in a niche online currency called Bitcoin in 2013, he left a conventional banking career to join a little startup called itBit. itBit is a bitcoin exchange, a website where clients can buy and sell bitcoins, and was one of the first wave of venture capital funded companies in the nascent cryptocurrency industry. After itBit, Antony privately consulted to clients mainly in the finance and consulting sectors, writing papers and running workshops to explain this new technology to curious professionals. In 2016 Antony joined R3, a financial industry consortium created to collaboratively explore the benefits of blockchain technology. As Director of Research, he explores and explains the evolving concepts and technologies to clients, policymakers, and the public. Antony currently sits on the Hong Kong Securities and Futures Commission’s FinTech Advisory Group panel. Before bitcoins and blockchains, Antony was a technologist at Credit Suisse in London and Singapore having started his banking career as an FX spot trader at Barclays Capital in 2007. Antony lives in Singapore with his wife Sarah and their two children and blogs at www.bitsonblocks.net.
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Book preview
Bitcoin on the Go - Antony Lewis
Praise for Antony Lewis
Einstein said that ‘if you can’t explain it simply, you don’t understand it well enough.’ Antony clearly understands and articulates the basics of cryptocurrencies and blockchain technologies.
—Colin Platt, Cohost of Blockchain Insider podcast & DLT/cryptocurrency researcher
The first book that I’ve seen that really breaks down concepts. An excellent insight into the key concepts and real-world implications of bitcoin and blockchain.
—Zennon Kapron, managing director of Kapronasia
If you want a book that over-sells blockchain, go elsewhere. This explains the fundamentals clearly and cuts through the hype.
—Richard Gendal Brown, CTO, R3
Bitcoin
on the Go
The Basics of Bitcoins and Blockchains—Condensed
Based on the work of
Antony Lewis
By the editors at Mango Publishing
Coral Gables
Copyright © 2022 by Antony Lewis.
Published by Mango Publishing, a division of Mango Publishing Group, Inc.
Cover Design & Layout: Roberto Nunez
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Bitcoin on the Go: The Basics of Bitcoins and Blockchains—Condensed
Library of Congress Cataloging-in-Publication number: 2022944395
ISBN: (print) 978-1-68481-203-5 (ebook) 978-1-68481-204-2
BISAC category code: BUS090030, BUSINESS & ECONOMICS / E-Commerce / Online Trading
Printed in the United States of America
Table of Contents
Introduction
Chapter 1
Bitcoin Basics
Chapter 2
Storing and Spending Bitcoin
Chapter 3
Ethereum
Chapter 4
Forks
Chapter 5
Blockchain Technology
Chapter 6
Initial Coin Offerings
Chapter 7
Investing
Conclusion
Appendix
The Fed
Acknowledgments
About the Author
Introduction
Bitcoin, blockchains, and cryptocurrencies are fascinating to me because there are so many elements to understand. This multidisciplinary nature is one of the reasons I, and so many others, love the industry—it is easy to get sucked into the rabbit hole, and as you try to understand each element, every answer begets more questions. The journey starts with ‘What is Bitcoin?’ but the explanations and answers come from the disciplines of economics, law, computer science, finance, civil society, history, geopolitics, and more. You could create a pretty comprehensive high school curriculum around Bitcoin and have plenty of material to spare.
And this is the very reason why it is so hard to explain. This book is an attempt to cover the basics. It is aimed at the thinking person but assumes that the reader doesn’t have a detailed background in the various disciplines mentioned previously. Different people will find different parts interesting. I try to use analogies where I think they help explain some concepts, but be gentle with me: all analogies break down if stretched too far. And although I have tried to be accurate, there will still be oversimplifications, errors and omissions. What is true today may not be tomorrow: the pace of change is rapid. I am the first to admit that there are limits to my own technical expertise. Nevertheless, I hope that every reader comes away learning something new.
With so many cryptocurrencies, it is not easy to make accurate generalisations: there are bound to be exceptions. For example, Bitcoin has proof-of-work
(which we will cover later). This competition consumes a lot of electricity. However, not all cryptocurrencies work this way.
Bearing this in mind, we will start with how Bitcoin works and then discuss some differences between Bitcoin and other cryptocurrencies.
Chapter 1
Bitcoin Basics
People refer to Bitcoin as a digital currency, virtual currency, or cryptocurrency, but it may be easier to think of it as an electronic asset. Bitcoin is also sometimes described as a digital token, and in some respects that is accurate, but the term token is now also used to mean something more specific, so the ambiguity of this term is best avoided.
What Are Bitcoins?
Bitcoins are digital assets (coins
) whose ownership is recorded on an electronic ledger updated (almost) simultaneously on about ten thousand independently operated computers, known as nodes,
around the world. This ledger is called Bitcoin’s blockchain. Each node independently validates all pending transactions wherever they arise. Specialist nodes, called miners, bundle valid transactions into blocks and distribute those blocks to nodes across the network.
Anyone can buy bitcoins, own them, and send them to others. Every Bitcoin transaction is shared publicly in plain text on Bitcoin’s blockchain. Anyone can, in theory, create bitcoins for themselves too. This is part of the block creation process, called mining, and is described later.
What Is the Point of Bitcoin?
The purpose of Bitcoin is described in a short document written by a pseudonymous Satoshi Nakamoto, published in October 2008. The abstract says:
A purely peer-to-peer version of electronic cash would allow online payments to be sent directly…without going through a financial institution…. We propose a solution…using a peer-to-peer network.
It sets out the purpose of Bitcoin and how Bitcoin derives both value and utility. As popularised by cryptocurrency industry commentator Tim Swanson, Bitcoin is designed as censorship-resistant digital cash.
How Does Bitcoin Work?
The Bitcoin blockchain is managed by about ten thousand computers. The most used software is called Bitcoin Core,
and the source code to this software is published on GitHub. This software contains the full range of functionalities needed for the network to exist. It can perform the following tasks:
• Connect with other participants in the Bitco in network
• Download the blockchain from other pa rticipants
• Store the blockchain
• Listen for new tr ansactions
• Validate those tr ansactions
• Store those tr ansactions
• Relay valid transactions to o ther nodes
• Listen for new blocks
• Validate th ose blocks
• Store those blocks as part of its blockchain
• Relay va lid blocks
• Create new blocks
• Mine
new blocks
• Manage addresses
• Create and send tr ansactions
However, in practice, the software is usually only used for its bookkeeping function, as explained in this section.
Bitcoin: an electronic payment system without a financial institution. If parties need to identify themselves, they lose privacy and are vulnerable to interference, coercion, prison, or worse. Every single part of the solution needs to work with these constraints in mind.
The solution starts with a classic centralised model and then tries to decentralise it, building the design of Bitcoin step by step.
Classic Centralised Model
Let’s start with a list with two columns: Account and Balance, managed by an administrator.
The administrator assigns account numbers to customers, who make payments by instructing the administrator. Each customer is named and, for security, has a password linked to their account.
The administrator maintains the central record of balances and makes all payments. They also ensure no one spends money they don’t have.
But if we want anyone to transact with anyone else without censorship, we need to remove the administrator, starting with anyone being able to open an account without needing permission from the administrator.
Problems and Solutions
Problem: Accounts Need Permission
The administrator’s job is to assign you an unused account number, then set you up with a username and password so that the administrator knows you are making the request.
The administrator grants permission to open the account and may refuse that permission. At that point, you have a point of third-party control.
Is there a way you can open an account without having to ask permission? Well, cryptography provides a solution.
Solution: Use Public Keys as Account Numbers
Instead of names or account numbers and passwords, why not use addresses as account numbers and digital signatures instead of passwords?
Addresses are mathematically derived from public keys. By using addresses as account numbers, anyone can create an account with their computer.
You can tell the world this Bitcoin address to allow people to pay to it. No one can spend anything from it unless they have the private key, which only you have.
Could someone else already be using an address that you randomly picked? Possible, but unlikely. Bitcoin’s scheme uses a random number between 0 and 115,792,089,237,316,195,423, 570,985,008,687,907,853,269,984,665,640,564,039,457,584,007,913,129,639,935 as a private key. There are so many private keys available that the possibility of stumbling across someone else’s account is virtually nil. As one commentator said, Go back to bed and don’t worry about this ever happening.
Public/private key pairs also solve the authentication problem. You digitally sign the transaction with your private key. The receiver can then check that the digital signature is valid for the respective account number.
Problem: Single Central Bookkeeper
We still have the third-party administrator in the role of central bookkeeper, and it would be classified as a financial institution, who