Bitcoin, Blockchains, &

Cryptocurrency
Introduction with some terms & definitions

Bitcoin and Cryptocurrency 101

In this class we will learn all about cryptocurrencies, focusing on the largest and most
well known example, the Bitcoin protocol.
This class will cover many aspects of Bitcoin and other cryptocurrencies including:
An in depth look at how Bitcoin works
A history of money and computing as well as a history of what has happened in the
btc/crypto since their inception in 2008
How this new technology fits into our existing world with things like regulations, media
coverage, companies, different cryptos, and prominent people in the space
A look at potential options for the future with topics being researched and developed
both in btc and with other cryptos

Some terms and definitions

Electronic money is any money system that is electronic. These can include
centralized systems like PayPal, Apple Pay, even Western Union.
Digital Currencies are e-money with the restriction that the monetary unit of
transmission isn't backed by a central bank. It is borderless and often much faster
than e-money. Digital currencies are often divided into two parts:
Virtual money, which has a physical equivalent. This can be a thing such as gold,
or if issued by a central government or bank it can have an equivalent value in fiat.

Cryptocurrencies, which are not created by governments or laws. They use

cryptography to secure transmission between individuals. Instead of a central
clearinghouse to keep trace of who owns who what, they use something called a
Blockchain.
An address is where crypto tokens can be sent to, and with it their history and
balance can be viewed. When using bitcoins it is usually 33-35 characters long, it
can rarely be lower but never higher. It will begin with a 1 if there is only one
secret key, or a 3 if the secret key is broken into pieces. The address is created
from the Public Key, which is in turn created from the Secret Key.

A public key is created from a secret key, often called a key pair. The public key is
not often seen itself but operates behind the scenes, proving ownership.. With only
the public address it is impossible with current and foreseeable technology to find
the public key.
A secret key is much like a password, in this case it is needed to redeem or use
any tokens associated with the public address that is created from the public key it
creates. These keys are created with some sort of digital signature, Bitcoin uses
something called ECDSA or elliptical curve digital signature algorithm. The SK is
All that is needed to spend funds, keep it safe and don't let others see it unless it
is encrypted.

A hash is the product of something called hashing. When information is hashed a

hash is returned. If the same information is changed even the smallest amount
and hashed again the resulting hash will be different. The resulting hash changes
dramatically with any change to the input.
A transaction for the purpose of this course will reference transaction recorded on
the Bitcoin blockchain. Software is used to create and broadcast a transaction, this
causes some amount of bitcoin to be moved from the control on one secret key to
another secret key. Each secret key has a corresponding public address where
the bitcoin is sent to. A confirmed transaction will be saved in the blockchain.
When the tx is broadcast it will be put into a block and wait conformation.

A node is a computer that receives this broadcast, verifies that it is in order, and
rebroadcasts it to other nodes that it knows. Nodes unless otherwise stated have a
list of all txs ever in the full blockchain.
There are different kinds of nodes. In the very beginning all computers were full
nodes, that is they had a whole blockchain, they had a wallet, they connected to
others and broadcast txs and blocks, and they mined new blocks.
Lite nodes, sometimes called thin nodes don't store a full copy of the blockchain.
A SPV node is one that doesn't keep a local copy of the blockchain and instead
gets txs of interest from those nodes. This requires trusting the connected nodes
aren't lying and doesn't help the network like a regular node.

Miners are now their own class of hardware. There are thousands of miners
worldwide who race to find a satisfying answer to a perpetual puzzle. Miners
organize txs into blocks and create new blocks for the blockchain. If a miner finds
a solution to a new block first they broadcast it to the world. They then receive any
fees from the txs in that block as well as a block reward. All in said digital token.
Mining pools are groups that incorporate the computational resources of their
members into one big attempt to find new blocks. Nowadays more miners use
pool miner services as they can receive more frequent but smaller payments.

A block is made up of some self identifying information called the block header,
and a set of txs. A block also contains a hash of the data that made up the
previous block's header.
A Blockchain is a distributed ledger which secures bits of data into larger blocks of
data, at roughly-regular intervals new data is written into a new block. Every new
block has a value corresponding to all the previous block, which in turn has a link
to its previous block, and so forth until the first block, known as the Genesis Block.

Bitcoin, or the Bitcoin Protocol, is always capitalized.

The coin or token 'bitcoin' is what powers the Bitcoin Blockchain, it is not
capitalized.
A satoshi is the atomic unit of bitcoins. There are 100,000,000 satoshis in one
bitcoin, another way to say this is that one satoshi is worth 0.00000001 bitcoin. It
is named after the pseudonymous creator of Bitcoin, Satoshi Nakamoto. There is
not currently a symbol to represent this amount.
A fee is a tiny amount of bitcoin that is paid with a tx. The creator of Bitcoin
planned that over years as the block reward went away and more people used
Bitcoin, that more fees would be used to pay miners. Fees are paid based on size

A microbitcoin or BTC. Often also referred to as a 'bit' this is not to be confused

with the unit of information in computer science. This is The letter 'mu' is often
used in scientific notation as a way to show one millionth of something. E.g. a
micrometer or m is one millionth of a meter.
A milli-bitcoin or mBTC is a term sometimes used as well.A protocol is the official
procedure or system of rules governing affairs of state or diplomatic occasions.
An algorithm is a set of rules to be followed in calculations or other
problem-solving operations.

What is Bitcoin?
Bitcoin is a protocol. It is a way to exchange unique digital pieces of data, in this
case the data can have value.
By interacting directly with the protocol, people can interact seemingly directly with
each other, without the need for a middleman or third party.
Bitcoin txs are irreversible Much like cash, it is up to the goodwill of others to give
you a refund if you want one.
There will only ever be so many bitcoins, and many of them have been lost
already.
The token, bitcoin, cannot be counterfeit or spend without the Secret Key, but the
SK can be stolen or lost if one is not careful.

What can it be used for?

Released as a peer-to-peer electronic cash, it can be used as an exchange of
value that is censorship resistant.
It is thought that like a digital gold the coins could act as a store of value over time.
A small message or hash of a document can be included in a tx, thus being
preserved for all time in the blockchain.
These messages can be used by other programs. They could be payments for
some application or machine, proof of ownership like a deed, proof of originality
such as with a piece of digital artwork, activation codes for more txs, settlement of
stocks or trades, even hints to the potentially complex parameters needed to
retrieve the coins.

What's bad about that?

Some say it has no intrinsic value. But none of our currency does.
Some say it is not backed by any government. But government backed money, or
fiat, has historically failed in many countries over time.
Some say it can be used for illicit activities. But fiat and cash already does this.
And a number of central banks have been found guilty of laundering money for
drug cartels.
There are no chargebacks and so like a cash purchase over the internet anyone
spending cryptos has to be sure they are paying the right address and paying the
right amount, including paying a fee.

Why would we want that?

No one can freeze or steal your funds, even if you do something they don't like.
People don't have to worry about bankrupt governments being able to seize their
funds.
No one can limit who you interact with, or what country or region they are in. This
may interest people living in countries under international sanctions.
Historically a draw of bitcoin was that it enabled very small txs, like
micropayments. This was possible because of the low tx fee, this also means that
it is cheaper to use Bitcoin than Visa or other payment options. This is beyond the
scope of many however and so centralized systems have emerged to be the
middleman in the tx. Still for cheaper than bank cards but also requiring trusting
said third party.

Why would we want that? Cont.

Btc txs are recorded in the open on the blockchain, any attempted abuse or
deception by a company that fully used the blockchain would be easy to notice.
To better understand why someone would create or want created cryptos, we
should look at the beginnings of it.

Release
Bitcoin and hence all cryptocurrencies have roots in the Cypherpunk beliefs, as
that is where news of Bitcoin first originated and where some previous work into
cryptos had taken place.
Cypherpunks believe that encryption can shield common people from oppression
and preserve rights, often from the government or large corporations.
The first mined block included the phrase, The Times 03/Jan/2009 Chancellor on
brink of second bailout for banks which was a headline that day in the London
Times. Showed no btc were created previous to this day, but may have also been
a remark on the central banks which have recently hurt the global economy.

Where does bitcoin work?

Bitcoin and any decentralized crypto can work anywhere there is internet, even the
space station. Txs can be broadcast to the network with poor and intermittent
coverage, though mining in such situations will not work.
It is most often used on a cell phone or computer program. But it is possible to use
through SMS/ text message.
It can still be used in countries with strict laws governing freedom and flow of
information.
It is based on the idea that information is easy to share and hard to stifle.

When does Bitcoin operate?

Bitcoin is maintained by thousands of people around the globe, and as such it is
always online and never closes.
People who are in different countries and continents run nodes and miners to keep
the network running. Some of these machines are kept in homes and garages,
some in businesses, and some in large and specialized buildings modified for just
that purpose. This keeps the network running at all times in the face of any local
outages. Anyone that goes offline can verify everything that took place while they
were gone and trust that there is nothing amiss.
Unlike banks Bitcoin never closes, there is no downtime and the network is never
down for maintenance.

Who uses Bitcoin?

While Bitcoin can be used by anyone with an internet connection. Who is currently
using it? As bitcoins were first introduced as a monetary unit, that is what most of
the use is for.
In addition to the Cypherpunk movement, Bitcoin seemed to have an appeal to
those who held the political philosophy of Libertarianism.
People investing or speculating on the price, after the 2013 great price rise a
number of people bought in hoping for another price bubble so they could make a
bunch of money.
Traders, who buy and sell btc and other cryptos on a regular basis trying to 'buy
low and sell high'.

Who uses Bitcoin? Cont.

People trying to send money across borders easier, aka remittance.
Holders who believe in the principles behind btc and believe by waiting they can
get a good return. These can be people who mined btc themselves in the early
days when anyone with a cpu could or people who just don't want to hassle with
btc but want to have some.
People buying bitcoin to run tests and analysis with. There is a lot of interest by
large corporations and companies to integrate Bitcoin's 'Blockchain technology'
into their own systems, often with the intention of not using the bitcoin token.
Increasingly people, companies, and devices themselves are gathering bitcoin to
use in computer systems, smart contracts, and the Internet of Things or IoT.

Who runs the system?

In the beginning there were few people running btc, records indicate that Satoshi
(SN), mined more than half of the blocks in the first year.
Over times hobbyists began to run nodes, often for a small amount of time before
stopping. Some very few amount of people believed in the idea and ran their
computers as often as they could.
But times have changed and people can't use a desktop to mine bitcoins anymore.
Specific hardware components called ASICs have been developed. Application
specific integrated circuit chips are not like computer chips in normal computers,
they are built and specialized for specific uses.

Mining hardware
Bitcoin mining companies have created their own ASICs which perform the lion's
share of mining these day, they also get most of the reward.
Some companies produce these chips and sell them to other companies and the
public, while some companies fabricate these chips and use them themselves.
Research is always ongoing to make better chips, and improvements are made in
highly technical hardware fabrication as well as software.
These improvements increase the hash power of the network, making it harder for
older machines to keep up.

Who runs the system? continued

There are a number of players that each have some amount of influence on the bitcoin ecosystem.
Miners
Mining pool operators
Nodes
Users
Companies
Media
Developers
Governments
ISPs

Influence of Miners
Miners secure txs and holdings. Many miners all operating independently create
security for the Bitcoin system.
If most miners stop working then someone with enough hashing/computing power
could give their coins back to themselves after they gave them to someone else.
This is known as a 51% attack as this 'bad actor' needs over 50% of the network's
hashing power to succeed every time.
With more miners this becomes very expensive. It is thought that by spending as
little as 2 Billion USD someone could buy enough hashing power to perform a
51% attack as of 2015.

Influence of Miners Cont

Miners can refuse to put into blocks any txs they don't like, blacklisting someone's
chance to get their tx into the next block with whatever proportion of global
hashpower that miner has. However has a small chance of success and without
the majority of the worlds hashing power, cannot be sustained.
Miners control putting txs into blocks and creating blocks for the blockchain, they
receive a generation transaction known as the 'coinbase reward' for doing so.
They also get some number of satoshis in fees for every transaction. If they
stopped working they would stop getting paid. Can they control a system if they
can't destroy it?

Influence of Mining Pools

Mining pool operators run the software and full blockchain that others use to
collectively mine.
The bigger and faster a pool, the more blocks it will find, the more reward it will
get, the more it's members will get paid, the more people will want to join it.
It's the miners' computers that do the calculations but it is the pool operators that
harness that hashpower and apply it, giving out more consistent rewards for
everyone.
As far as censorship abilities, the operators are like big miners, they can point the
hashpower and feed it txs to be mined.

Influence of Mining Pools Cont

But people are just doing the computations that the pool tells them, if the pool
operators wants to they could try to censor txs from or to someone they disagree
with, making it harder for that person to send to receive payment. But like miners
their attack would only be a delay.
Unless they conspired with other pool operators to in which case they would
increase their chances of success. They would need over 50% of the global
hashing power to succeed with this.
If they shut down miners could easily move to another pool

Influence of Nodes
Nodes can and often are run by altruists who want to help the network at some
minor expense to themselves, if it is only time.
Business, and those with a large stake in Bitcoin also run nodes but they do it for
their own sake and not to help the network.
Nodes receive broadcast txs, validate them, and rebroadcast them to their list of
connected nodes.
The network could likely sustain a large drop in nodes, but this increases the risk
that any one node or group of nodes could refuse to forward txs they disagree
with.

Influence of Users
Users are people who spend and receive coins on some time table. Some might
consider those that buy and hold coins not to be users, but that is talk for another
time.
Users who keep coins as investment help create scarcity in the number of
available coins. This lowering of supply can increase demand. If these holders all
decided to sell their coins, it would likely have the opposite effect. This sort of
feedback loop has been seen in failing businesses in the past.
If the users are unhappy with the system they might leave and use another
system. If Bitcoin or any crypto has no users it has no utility, because what use is
a system no one wants to use.

Influence of Users Cont

Users have to bear the consequences of developers' decisions. They have to wait
for inclusion in block, wait for conformation, pay fees, use wallets or client
software, etc.
If most users stop buying, selling, and txing the media will surely report on
Bitcoin's impending doom, which may scare others away exacerbating the
problem.
Though in many stories in the past have cried wolf in this regard cryptos still exist,
if there was an insurmountable problem in one crypto users would probably
migrate to another option.

Influence of Companies
Companies control things such as exchange points like websites and kiosks, wallet
application and hardware, mining hardware production, websites or discussion forums,
remittance or transmission applications, etc.
They can publicly endorse any changes they agree with disagree with and try to sway
opinion. Those with a large number of users can try and use said numbers of users as
leverage for support of proposals.
Each realm has a number of things it can do to influence workings or public perception.
Some companies have in the past performed capacity tests on the Bitcoin network, throttling
normal transactions and clogging the network. Companies and individuals with enough
knowledge and malice can temporarily slow the network, but to do so require spending
resources on fees.

Influence of Media
Much of the media related to cryptocurrencies is based online. The two largest
discussion forums for bitcoin, reddit.com/r/bitcoin and bitcointalk.org are both
moderated by the same person, who in 2015 began censoring discussion he did
not agree with, and these sites are no longer recommended. Other, though less
popular options are advised.
For more technical discussion the developer mailing list and IRC channel or
Internet Relay Chat exist.
Since anyone worldwide can work on the software the developers are often
spread out in location and time. Therefore much of the communication about
cryptos, both development and discussion happens online.

Influence of Media Cont

The media, or sites that publish news stories or host discussion can influence
opinion. By showing many stories on a subject or point of view they can make a
small problem seem like a bigger one. By showing few or no stories on another
subject they can make a big problem invisible to some people. Selective editing,
where problems are trivialized or opinions quoted as fact can be damaging as
well.
Media in bitcoin can stifle discussion or development.
Social media allows new tactics for those with knowledge, recourses, and
motivation to manipulate the knowledge of others.

Influence of Developers
Bitcoin is open source, so anyone can contribute to the code.
But people can't just make a code change and bitcoin changes. If a change is
approved or accepted by enough of the developers and community then it can be
included in the next software version or release of the software. Then people have
to download that new version, install it, and begin running it.
There has to be some certain number of people using any implementation for it to
then become active.
A renegade dev could try and introduce some malicious modifications into the
system, but they would have to get them by the review of many people.

Influence of Developers
A group of malicious developers could gain more support saying there was some
issue and they were all the experts on it, but the code would still be reviewable by
anyone online.
The devs could refuse to act for a given problem however, thus endangering the
health of the ecosystem and alienating themselves.
There is no official Bitcoin system and yet there is a Core client that is the current
de-facto standard and it has both contributors and developers.

Influence of Governments
Governments have exerted little influence so far on cryptos, with some agencies advocating
against heavy regulation that might stifle new growth.
A few governments have issued restrictions or outright bans on cryptos.
Restrictions mostly apply to businesses and those that deal with local fiat. These actions
might impede start up companies that don't have large amounts of funding.
Banning use of cryptos, particular ones or in general, makes it illegal for people to use. This
can make cryptos less popular locally or push their use into the black market.
Government exert local power and some governments like to censor the internet. Crypto use
is still possible but it is more difficult.

Influence of ISPs
Internet service providers, or ISPs, connect most homes and businesses to the internet. All internet traffic
goes through them before being routed to the end recipient.
Much web traffic these days is encrypted, but much of that encryption is weak or compromised, and a
large amount of web traffic isn't encrypted at all. So anyone who taps into the connection can see what is
happening. This is especially easy for ISPs who host the traffic.
ISPs then have the ability to monitor some amount of web traffic, and stop thing that they don't like from
getting out or to the real recipient.
They also have the ability to modify data in transit and or reroute it. This means they potentially can
reroute the hashpower of a mining pool to their own ends.
However these actions would likely be detected quickly and corrected; and nothing like this has ever been
documented.

Who created Bitcoin?

It is unknown who really created Bitcoin. The proposal and code were released under the name 'Satoshi
Nakamoto'.
On his P2P foundation profile he claimed that he is 37 year old male and lived in Japan, but this may not
be true.
There are a number of people that don't think the original Bitcoin software was written by a professional
developer. While it appears elegant in some places it is inelegant in others.
Some have also suggested that SN had a lot of theoretical knowledge he lacked a large amount of
programming experience.
SN helped run the network until 2010, in 2011 he disappeared completely.
SN is thought to have mined nearly 1 million bitcoins, none of which have moved since being mined.

How does Bitcoin work?

Now that we know some of the when, what, where, and why; the next section looks at
the how.
There are many parts of bitcoin so let us look at how each part works.
To review, in btc people (mostly) create txs that they then broadcast and are verified
and packaged into the blockchain. The txs move control of some amount of bitcoin,
often from under the control on one Secret Key to another SK. These bitcoins can be
found on the public blockchain in a bitcoin address associated with a specific SK. An
entire list of all txs is kept by nodes.Nodes relay txs to each other and special hardware
called miners. Miners use electricity to secure the network and package txs into blocks
that then add to the blockchain for a 'coinbase reward' and any fees paid on the txs in
that block. A program that holds and spends coins is called a wallet.

Info sources
Dictionary https://www.merriam-webster.com/dictionary
Mastering Bitcoin by Andreas Antonopoulos https://chimera.labs.oreilly.com/books/1234000001802
Genesis block https://blockchain.info/tx/4a5e1e4baab89f3a32518a88c31bc87f618f76673e2cc77ab2127b7afdeda33b?show_adv=true
Bitcoin flows http://www.ofnumbers.com/2015/04/22/the-flow-of-funds-on-the-bitcoin-network-in-2015/
More Satoshi sources:
https://drive.google.com/file/d/0B6xWx7EWH5mmRlFsekpfYVc0blE/view
http://www.coindesk.com/information/who-is-satoshi-nakamoto/
https://en.wikipedia.org/wiki/Satoshi_Nakamoto
http://www.economist.com/blogs/economist-explains/2015/11/economist-explains-1
https://motherboard.vice.com/blog/who-is-satoshi-nakamoto-the-creator-of-bitcoin
http://satoshi.nakamotoinstitute.org/