Understanding Bitcoin

Discover Bitcoin, the cryptocurrency that has the finance world
buzzing

Bitcoin is arguably one of the biggest developments in finance
since the advent of fiat currency. With Understanding
Bitcoin, expert author Pedro Franco provides finance
professionals with a complete technical guide and resource to the
cryptography, engineering and economic development of Bitcoin and
other cryptocurrencies. This comprehensive, yet accessible work
fully explores the supporting economic realities and technological
advances of Bitcoin, and presents positive and negative arguments
from various economic schools regarding its continued
viability.

This authoritative text provides a step-by-step description of
how Bitcoin works, starting with public key cryptography and moving
on to explain transaction processing, the blockchain and mining
technologies. This vital resource reviews Bitcoin from the broader
perspective of digital currencies and explores historical attempts
at cryptographic currencies. Bitcoin is, after all, not just a
digital currency; it's a modern approach to the secure transfer of
value using cryptography. This book is a detailed guide to what it
is, how it works, and how it just may jumpstart a change in the way
digital value changes hands.

• Understand how Bitcoin works, and the technology behind it

• Delve into the economics of Bitcoin, and its impact on the
  financial industry

• Discover alt-coins and other available cryptocurrencies

• Explore the ideas behind Bitcoin 2.0 technologies

• Learn transaction protocols, micropayment channels, atomic
  cross-chain trading, and more

Bitcoin challenges the basic assumption under which the current
financial system rests: that currencies are issued by central
governments, and their supply is managed by central banks. To fully
understand this revolutionary technology, Understanding
Bitcoin is a uniquely complete, reader-friendly guide.

Autorentext

PEDRO FRANCO holds an MSc in Electrical Engineering from ICAI, a BSc in Economics and an MBA from INSEAD. He has been a consultant with McKinsey and Boston Consulting Group, as well as a researcher with IIT, prior to gaining more than 10 years of experience in financial markets, holding Quant and Trading positions in Credit, Counterparty Risk, Inflation and Interest Rates. He has created various mathematical libraries for financial derivatives, and managed teams of software developers. He can be contacted at pfrancobtc@gmail.com.

Zusammenfassung
Discover Bitcoin, the cryptocurrency that has the finance world buzzing Bitcoin is arguably one of the biggest developments in finance since the advent of fiat currency. With Understanding Bitcoin, expert author Pedro Franco provides finance professionals with a complete technical guide and resource to the cryptography, engineering and economic development of Bitcoin and other cryptocurrencies. This comprehensive, yet accessible work fully explores the supporting economic realities and technological advances of Bitcoin, and presents positive and negative arguments from various economic schools regarding its continued viability.

This authoritative text provides a step-by-step description of how Bitcoin works, starting with public key cryptography and moving on to explain transaction processing, the blockchain and mining technologies. This vital resource reviews Bitcoin from the broader perspective of digital currencies and explores historical attempts at cryptographic currencies. Bitcoin is, after all, not just a digital currency; it's a modern approach to the secure transfer of value using cryptography. This book is a detailed guide to what it is, how it works, and how it just may jumpstart a change in the way digital value changes hands.

• Understand how Bitcoin works, and the technology behind it
• Delve into the economics of Bitcoin, and its impact on the financial industry
• Discover alt-coins and other available cryptocurrencies
• Explore the ideas behind Bitcoin 2.0 technologies
• Learn transaction protocols, micropayment channels, atomic cross-chain trading, and more
  Bitcoin challenges the basic assumption under which the current financial system rests: that currencies are issued by central governments, and their supply is managed by central banks. To fully understand this revolutionary technology, Understanding Bitcoin is a uniquely complete, reader-friendly guide.

Inhalt

About the Author xi

Acknowledgments xiii

Foreword xv

Prologue xvii

Preface xix

PART ONE: INTRODUCTION AND ECONOMICS 1

CHAPTER 1 Foundations 3

1.1 Decentralized 4

1.2 Open Source 6

1.3 Public Asset Ledger 8

1.4 It's Not Only the Currency, It's the Technology 9

CHAPTER 2 Technology (Introduction) 11

2.1 Centralized Database 11

2.2 Addresses, Transactions 13

2.3 Distributed Database, the Blockchain 15

2.4 Wallets 17

2.5 The Different Meanings of Bitcoin 18

CHAPTER 3 Economics 21

3.1 Medium of Exchange 22

3.1.1 Pros 25

3.1.2 Cons 26

3.2 Store of Value 27

3.2.1 Bitcoin as Investment 29

3.2.2 Pros 30

3.2.3 Cons 31

3.3 Unit of Account 32

3.4 Deflation 32

3.5 Volatility 33

3.6 Effect on the Financial Industry and Monetary Policy 35

3.7 Regulation 37

CHAPTER 4 Business Applications 39

4.1 Money Transfer 39

4.2 Exchanges 40

4.3 Payment Processors 43

4.4 Web Wallets 43

4.5 Multisignature Escrow Services 45

4.6 Mining 46

4.7 ATMs 48

PART TWO: BITCOIN TECHNOLOGY 49

CHAPTER 5 Public Key Cryptography 51

5.1 Public Key Encryption 53

5.2 Digital Signatures 56

5.3 RSA 59

5.4 Elliptic Curve Cryptography 62

5.4.1 Elliptic Curve Summary 63

5.4.2 Elliptic Curve Theory 64

5.5 Other Cryptographic Primitives 71

5.5.1 Blind Signatures 71

5.5.2 Shamir Secret Sharing 72

5.6 Bitcoin Addresses 73

CHAPTER 6 Transactions 77

6.1 Transaction Scripts 80

6.2 Pay-to-address and Pay-to-public-key Transactions 82

6.3 Multisignature (m-of-n) Transactions 84

6.4 Other Transaction Types 85

6.5 Transaction Signature 86

6.6 Pay-to-script-hash (P2SH) 89

6.7 Standard Transactions 92

CHAPTER 7 The Blockchain 95

7.1 Hash Functions 95

7.2 Time-stamp 99

7.3 Proof-of-work 101

7.4 The Blockchain 105

7.5 Double-spend and Other Attacks 113

7.5.1 Race Attack 115

7.5.2 Finney Attack 116

7.5.3 Transaction Spamming 116

7.6 Merkle Trees 117

7.6.1 Transaction Malleability 119

7.7 Scalability 120

CHAPTER 8 Wallets 123

8.1 Symmetric-key Cryptography 125

8.2 Offline Wallets 126

8.2.1 External Storage Media 127

8.2.2 Paper Wallets 127

8.2.3 Offline Devices 129

8.2.4 Hardware Wallets 130

8.3 Web Wallets 131

8.4 Brain Wallets 132

8.5 Deterministic Wallets 132

8.5.1 Message Authentication Code (MAC) 134

8.5.2 Hierarchical Deterministic Wallets 135

8.6 Multisignature Wallets 136

8.7 Vanity addresses 137

8.8 Simplified Payment Verification (SPV) 139

8.9 The Payment Protocol (BIP 70) 141

CHAPTER 9 Mining 143

9.1 Mining Technology 146

9.2 Pooled Mining 149

9.3 Transaction Fees 154

9.4 Selfish Mining 156

PART THREE: THE CRYPTOCURRENCIES LANDSCAPE 159

CHAPTER 10 The Origins Of Bitcoin 161

10.1 David Chaum's Ecash 162

10.2 Adam Back's Hashcash 163

10.3 Nick Szabo's bit gold and Wei Dai's b-money 164

10.4 Sander and Ta-Shma's Auditable, Anonymous Electronic Cash 165

10.5 Hal Finney's RPOW 167

10.6 Satoshi Nakamoto 168

CHAPTER 11 Alt(ernative) Coins 171 ...