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 was the most exciting technology I had encountered since the Internet. It was now time to share my passion about this amazing technology 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.
This book is available on Github, as a repository that contains the text, images and code:
Fork the book code, try the code examples, or submit corrections via Github.
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 sophisticated 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.
The following typographical conventions are used in this book:
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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
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Shows text that should be replaced with user-supplied values or by values determined by context.
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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)
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A bitcoin address looks like 1DSrfJdB2AnWaFNgSbv3MZC2m74996JafV - they consist of a string of letters and numbers starting with a "1" (number one). Just like you ask others to send an email to your email address, you would ask others to send you bitcoin to your bitcoin address.
- bip
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Bitcoin Improvement Proposals. A set of proposals that members of the bitcoin community have submitted to improve bitcoin. For example BIP0021 is a proposal to improve the bitcoin URI scheme.
- bitcoin
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The name of the currency unit (the coin), the network and the software
- block
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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.
- blockchain
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A list of validated blocks, each linking to its predecessor all the way to the genesis block.
- confirmations
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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 sufficient proof that a transaction cannot be reversed.
- difficulty
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A network-wide setting that controls how much computation is required to find a proof-of-work.
- difficulty target
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A difficulty at which all the computation in the network will find blocks approximately every 10 minutes.
- difficulty re-targeting
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A network-wide re-calculation of the difficulty which occurs once every 2106 blocks and considers the hashing power of the previous 2106 blocks.
- fees
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The sender of a transaction often includes a fee to the network for processing their requested transaction. Most transactions require a minimum fee of 0.5mBTC.
- hash
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A digital fingerprint of some binary input.
- genesis block
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The first block in the blockchain, used to initialize the crypto-currency
- miner
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A network node that finds valid proof-of-work for new blocks, by repeated hashing
- network
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A peer-to-peer network that propagates transactions and blocks to every bitcoin node on the network.
- proof-of-work
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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.
- reward
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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)
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The secret number that unlocks bitcoins sent to the corresponding address. A secret key looks like 5J76sF8L5jTtzE96r66Sf8cka9y44wdpJjMwCxR3tzLh3ibVPxh
- transaction
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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.
- wallet
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Software that holds all your bitcoin addresses and secret keys. Use it to send, receive and store your bitcoin.
Many contributors offered comments, corrections and additions to the early-release draft on Github. Thank you all for your contributions to this book. Notable contributors included the following:
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Minh T. Nguyen - enderminh: Github contribution editor
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Ed Eykholt - edeykholt
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Michalis Kargakis - kargakis
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Erik Wahlström - erikwam
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Richard Kiss - richardkiss
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Eric Winchell - winchell
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Sergej Kotliar - ziggamon
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Nagaraj Hubli - nagarajhubli
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ethers
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Alex Waters - alexwaters
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Mihail Russu - MihailRussu
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Ish Ot Jr. - ishotjr
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James Addison - jayaddison
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Nekomata - nekomata-3
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Simon de la Rouviere - simondlr
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Chapman Shoop - belovachap
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Holger Schinzel - schinzelh
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effectsToCause - vericoin
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Stephan Oeste - Emzy
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Joe Bauers - joebauers
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Jason Bisterfeldt - jbisterfeldt
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Ed Leafe - EdLeafe