Antony Lewis - Bitcoin on the Go: The Basics of Bitcoins and Blockchains―Condensed

Praise for Antony Lewis

Einstein said that if you cant explain it simply, you dont understand it well enough. Antony clearly understands and articulates the basics of cryptocurrencies and blockchain tech nologies.

Colin Platt, Cohost of Blockchain Insider podcast & DLT/cryptocurrency researcher

The first book that Ive seen that really breaks down concepts. An excellent insight into the key concepts and real-world implications of bitcoin and bl ockchain.

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 Brow n, 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 BlockchainsCondensed

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

T able of Contents

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 industryit 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 doesnt 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 some thing 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 cryptoc urrencies.

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 bes t 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 Bitcoins 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 th e network.

Anyone can buy bitcoins, own them, and send them to others. Every Bitcoin transaction is shared publicly in plain text on Bitcoins blockchain. Anyone can, in theory, create bitcoins for themselves too. This is part of the block creation process, called mining, and is descri bed 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 abst ract says:

A purely peer-to-peer version of electronic cash would allow online payments to be sent directlywithout going through a financial institution. We propose a solutionusing a peer-to-pee r 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 dig ital 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 follow ing 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 thi s 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 constraint s in mind.

The solution starts with a classic centralised model and then tries to decentralise it, building the design of Bitcoin ste p by step.

Classic Centralised Model

Lets start with a list with two columns: Account and Balance, managed by an admi nistrator.