Chris Wilmer and Conrad Barski - Bitcoin for the Befuddled

by Conrad Barski and Chris Wilmer

San Francisco

BITCOIN FOR THE BEFUDDLED. Copyright 2015 by Conrad Barski and Chris Wilmer.

All rights reserved. No part of this work may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage or retrieval system, without the prior written permission of the copyright owner and the publisher.

Printed on demand in USA.

ISBN-10: 1-59327-573-0

ISBN-13: 978-1-59327-573-0

Publisher: William Pollock

Production Editor: Serena Yang

Cover Illustration: Conrad Barski

Interior Design: Octopod Studios

Developmental Editor: Tyler Ortman

Technical Reviewer: Patrick Fuller

Copyeditor: Anne Marie Walker

Compositor: Alison Law

Proofreader: Paula L. Fleming

Indexer: Nancy Guenther

For information on distribution, translations, or bulk sales, please contact No Starch Press, Inc. directly:

No Starch Press, Inc.

245 8th Street, San Francisco, CA 94103

phone: 415.863.9900;

www.nostarch.com

Library of Congress Control Number: 2014951031

No Starch Press and the No Starch Press logo are registered trademarks of No Starch Press, Inc. Other product and company names mentioned herein may be the trademarks of their respective owners. Rather than use a trademark symbol with every occurrence of a trademarked name, we are using the names only in an editorial fashion and to the benefit of the trademark owner, with no intention of infringement of the trademark.

The information in this book is distributed on an As Is basis, without warranty. While every precaution has been taken in the preparation of this work, neither the authors nor No Starch Press, Inc. shall have any liability to any person or entity with respect to any loss or damage caused or alleged to be caused directly or indirectly by the information contained in it.

Nothing in this book is intended to offer legal or financial advice, and neither the authors nor the publisher are engaged in the business of rendering such advice. If youre looking for legal or financial advice, please run to the nearest qualified professional and dont ask us. Neither the authors nor the publisher will be liable for any loss or risk that you incur by using the information contained in this book.

About the Authors

Conrad Barski has an M.D. from the University of Miami and nearly 20 years of programming experience. Barski is a cartoonist, programmer, and the author of Land of Lisp (No Starch Press). Hes been using Bitcoin since 2011.

Chris Wilmer holds a Ph.D. in chemical engineering from Northwestern University and is a professor at the University of Pittsburgh. Wilmers first purchase with Bitcoin was a bag of honey caramels from a farm in Utah. They were delicious.

Chapter 1:
WHAT IS BITCOIN?

Chapter 2:
BITCOIN BASICS

Chapter 3:
STORING YOUR BITCOINS SAFELY, SECURELY, AND CONVENIENTLY

Chapter 4:
BUYING BITCOINS

Chapter 5:
LOST AT SEA: A CRYPTOGRAPHIC ADVENTURE

Chapter 6:
WHY BITCOIN IS A BIG DEAL

Chapter 7:
The Cryptography Behind Bitcoin

Chapter 8:
BITCOIN MINING

8.5
THE STRANGE WORLD OF ALTCOINS

Chapter 9:
UNDERSTANDING THE DIFFERENT TYPES OF BITCOIN WALLETS

Chapter 10:
BITCOIN 2030

Appendix A:
HELLO MONEY! A SIMPLE JAVASCRIPT PROGRAM

Appendix B:
BITCOIN PROGRAMMING WITH BITCOINJ

In writing this book, we wanted to explain the concept and potential of Bitcoin in a more-or-less timeless manner. Boy, was that hard. It would have been much easier to write a book called The State of Bitcoin Right Now: Please Disregard Everything in This Book One Year After Its Publication. The core technology behind Bitcoin, as well as the larger technological infrastructure around it, is rapidly evolving as this book goes to press. The debates about the legality, price volatility, and merchant adoption of Bitcoin may already be out of date by 2015, and who knows how they will sound in 2025.

To keep this book relevant for the future, we did our best to focus on those aspects of Bitcoin that will remain important forever, and we tried to cover them in a way that is fun. We hope you will enjoy our approach to this fascinating subject.

Chris Wilmer would like to thank his wife Emily Winerock and his family for their patience and early feedback. Conrad Barski would like to thank his wife Lauren Barski and daughter Ava Barski for their support as he was working on this book and for their patience during all the weekends and evenings he spent to get it done.

Special thanks go to Richard Ford Burley, for substantial editorial help in the early drafts of this book, and to Patrick Fuller, for reviewing the programming sections. Many of the great people at No Starch Press helped us to get this book into shape, including Serena Yang, Tyler Ortman, Bill Pollock, and others.

WHAT IS BITCOIN?

In the simplest terms, Bitcoin is just another currency. The term Bitcoin refers to the entire currency system, whereas bitcoins are the basic units of the currency. As with dollars, euros, yen, and gold coins, you can save bitcoins, spend them on goods and services, and exchange them for other currencies. However, Bitcoin is the worlds first currency that is both digital and decentralized.

A digital currency is one that can be easily stored and used on a computer. By this definition, even dollars can be considered a digital currency, since they can be easily sent to others or used to shop online, but their supply is controlled by a centralized bank organization. In contrast, gold coins are decentralized, meaning that no central authority controls the supply of gold in the world. In fact, anyone can dig for gold, create new coins, and distribute them. However, unlike digital currencies, its not easy to use gold coins to pay for goods (at least not with exact change!), and its impossible to transfer gold coins over the Internet. Because Bitcoin combines these two properties, it is somewhat like digital gold. Never before has there been a currency with both these two properties, and its impact on our increasingly digital, globalized world may turn out to be significant.

Many people are asking about the motive behind the creation of Bitcoin, so lets explore the currencys purpose.

Until recently, people could not send digital cash back and forth to each other in a reliable way without a central mediator. A trusted central mediator such as PayPal can track payments and money transfers in a privately held account ledger, but it wasnt clear how a group of strangers who do not trust each other could accomplish the same transactions dependably. Sometimes referred to as the Byzantine Generals Problem, this fundamental conundrum also emerges in computer science, specifically in how to achieve consensus on a distributed network.