Mastering Bitcoin (2012)
Writing the Bitcoin Book
I first stumbled upon bitcoin in mid-2011. My immediate reaction was more or less “Pfft! Nerd money!” and I ignored it for another 6 months, failing to grasp its importance. This is a reaction which I have seen repeated among many of the smartest people I know, which gives me some consolation. The second time I came across bitcoin in a mailing list discussion, I decided to read the white paper written by Satoshi Nakamoto, to study the authoritative source and see what it was all about. I still remember the moment I finished reading those 9 pages, when I realized that bitcoin was not simply a digital currency, but a network of trust that could also provide the basis for so much more than just currencies. That realization: “This isn’t money, it’s a de-centralized trust network,” started me on a four month journey to devour every scrap of information about bitcoin I could find. I became obsessed and enthralled, spending twelve or more hours each day glued to a screen, reading, writing, coding and learning as much as I could. I emerged from this state of fugue, more than 20 lbs lighter from lack of consistent meals, determined to dedicate myself to working on bitcoin.
Two years later, after creating a number of small startups to explore various bitcoin-related services and products, I decided that it was time to write my first book. Bitcoin was the topic that had driven me into a frenzy of creativity, consumed my thoughts and is the most exciting technology I have encountered since the Internet. It was now time to share my discovery of this amazing technolgy and my passion with a broader audience. This is the bitcoin book.
This book is mostly intended for coders. If you can use a programming language, this book will teach you how cryptographic currencies work, how to use them and how to develop software that works with them. The first few chapters are also suitable as an in-depth introduction to bitcoin for non-coders - those trying to understand the inner workings of bitcoin and cryptocurrencies. The examples are illustrated in Python and on the command-line of a Unix-like operating system such as Linux.
The early release version of the book is a raw and rough draft and will change regularly. New chapters will be added as they are drafted and there will be plenty of changes to the content, examples and diagrams. There will be factual and technical errors in the early release and some of the examples may not work or refer to obsolete versions of the code. Nevertheless, I hope you will enjoy the content and find it useful. I also hope that you will take the opportunity to “fork” the source code of the book and provide feedback by creating a pull request or submitting a patch. I present this work in the spirit of Cunningham’s Law, named after the inventor of the wiki, Ward Cunningham:
The best way to get the right answer on the Internet is not to ask a question, it’s to post the wrong answer
I hope you can help me find and publish the “right answer” by the time this book is ready to print.
Why Are There Bugs On The Cover?
The Leafcutter Ant is a species that exhibits highly complex behavior in a colony super-organism, but each individual ant operates on a set of simple rules driven by social interaction and the exchange of chemical scents (pheromones). Per Wikipedia: “Next to humans, leafcutter ants form the largest and most complex animal societies on Earth.” Leafcutter ants don’t actually eat leaves, but rather use them to farm a fungus, which is the central food source for the colony. Get that? These ants are farming!
While ants form a caste-based society and have a queen for producing offspring, there is no central authority or leader in an ant colony. The highly intelligent and sohpisticated behavior exhibited by a multi-million member colony is an emergent property from the interaction of the individuals in a social network.
Nature demonstrates that de-centralized systems can be resilient and can produce emergent complexity and sophistication without the need for a central authority, hierarchy or complex parts.
Bitcoin is a highly sophisticated de-centralized trust network that can support a myriad of financial processes. Yet, each node in the bitcoin network follows a few simple mathematical rules. The interaction between many nodes is what leads to the emergence of the sophisticated behavior, not any inherent complexity or trust in any single node. Like an ant colony, the bitcoin network is a resilient network of simple nodes following simple rules that together can do amazing things without any central coordination.
Conventions Used in This Book
The following typographical conventions are used in this book:
Indicates new terms, URLs, email addresses, filenames, and file extensions.
Used for program listings, as well as within paragraphs to refer to program elements such as variable or function names, databases, data types, environment variables, statements, and keywords.
Constant width bold
Shows commands or other text that should be typed literally by the user.
Constant width italic
Shows text that should be replaced with user-supplied values or by values determined by context.
This icon signifies a tip, suggestion, or general note.
This icon indicates a warning or caution.
This quick glossary contains many of the terms used in relation to bitcoin. These terms are used throughout the book, so bookmark this for a quick reference and clarification.
address (aka public key)
A bitcoin address looks like 1DSrfJdB2AnWaFNgSbv3MZC2m74996JafV, they always start with a one. You can have as many as you like, share them so people can send you coins.
The name of the currency unit (the coin), the network and the software
A grouping of transactions, marked with a timestamp, and a fingerprint of the previous block. The block header is hashed to find a proof-of-work, thereby validating the transactions. Valid blocks are added to the main blockchain by network consensus.
A list of validated blocks, each linking to its predecessor all the way to the genesis block.
Once a transaction is included in a block, it has “one confirmation”. As soon as another block is mined on the same blockchain, the transaction has two confirmations etc. Six or more confirmations is considered final.
A network-wide setting that controls how much computation is required to find a proof-of-work.
A difficulty at which all the computation in the network will find blocks approximately every 10 minutes.
A network-wide re-calculation of the difficulty which occurs once every 2106 blocks and considers the hashing power of the previous 2106 blocks.
An excess amount included in each transaction as a network fee or additional reward to the miner who finds the proof-of-work for the new block. Currently 0.5 mBTC minimum.
A digital fingerprint of some binary input.
The first block in the blockchain, used to initialize the crypto-currency
A network node that finds valid proof-of-work for new blocks, by repeated hashing
A peer-to-peer network that propagates transactions and blocks to every bitcoin node on the network.
A piece of data that requires significant computation to find. In bitcoin, miners must find a numeric solution to the SHA256 algorithm that meets a network wide target, the difficulty target.
An amount included in each new block as a reward by the network to the miner who found the proof-of-work solution. It is currently 25BTC per block.
secret key (aka private key)
The secret number that unlocks bitcoins sent to the corresponding address.
In simple terms, a transfer of bitcoins from one address to another. More precisely, a transaction is a signed data structure expressing a transfer of value. Transactions are transmitted over the bitcoin network, collected by miners and included into blocks, made permanent on the blockchain.
Software that holds all your addresses. Use it to send bitcoin and manage your keys.