The Basics of Bitcoins and Blockchains: An Introduction to Cryptocurrencies and the Technology That Powers Them 2017

Summary:

• The Basics of Bitcoins and Blockchains: An Introduction to Cryptocurrencies and the Technology That Powers Them by Antony Lewis is a comprehensive guide to understanding cryptocurrencies, blockchain technology, and their implications. The book begins with an overview of the history of money, from bartering to digital currencies. It then explains how Bitcoin works, including its underlying cryptography and distributed ledger technology (blockchain). It also covers topics such as mining for bitcoins, wallets for storing them securely, exchanges where they can be bought or sold, and other applications that use blockchain technology.

  The book provides detailed explanations on various aspects of cryptocurrency trading such as market analysis techniques used by traders. It also discusses potential risks associated with investing in cryptocurrencies such as volatility in prices due to speculation or manipulation. Additionally it looks at the legal status of cryptocurrencies around the world and examines some current regulatory issues.

  In addition to providing technical information about Bitcoin and blockchains, this book offers insights into why these technologies are so revolutionary. It explores how they could potentially disrupt existing financial systems while creating new opportunities for individuals who want more control over their finances. Finally it looks at some possible future scenarios involving decentralized autonomous organizations (DAOs) which could revolutionize business models.

Main ideas:

• #1.     What is Bitcoin? - Bitcoin is a digital currency that is decentralized, meaning it is not controlled by any government or central bank. It is based on a technology called blockchain, which is a distributed ledger system that records and verifies transactions.
  
  

  Bitcoin is a digital currency that is decentralized, meaning it is not controlled by any government or central bank. It operates on a peer-to-peer network and allows users to send and receive payments without the need for an intermediary such as a bank or credit card company. Transactions are verified through cryptography and recorded in a public ledger called the blockchain.

  The blockchain technology behind Bitcoin enables secure transactions with no middleman involved. This means that users can transfer funds directly from one user to another without having to go through an intermediary like a bank or payment processor. The blockchain also provides transparency, as all transactions are publicly viewable on the distributed ledger.

  In addition to being used as a form of payment, Bitcoin has become popular among investors due to its potential for appreciation over time. As more people adopt Bitcoin, its value increases due to increased demand and limited supply.

• #2.     What is Blockchain? - Blockchain is a distributed ledger system that records and verifies transactions. It is a secure and immutable way of storing data, and it is the technology that powers Bitcoin and other cryptocurrencies.
  
  

  Blockchain is a distributed ledger system that records and verifies transactions. It is a secure and immutable way of storing data, meaning it cannot be changed or tampered with once it has been recorded. This makes blockchain an ideal technology for securely recording financial transactions, as well as other types of data such as contracts, medical records, and more.

  The most popular application of blockchain technology is in the form of cryptocurrencies like Bitcoin. In this case, the blockchain acts as a public ledger that stores all transaction information between two parties in an encrypted format. Each transaction must be verified by multiple computers on the network before being added to the chain – making it virtually impossible to hack or alter.

  In addition to its use in cryptocurrency applications, blockchain can also be used for many other purposes such as smart contracts and digital identity management. As more businesses begin to explore how they can leverage this revolutionary technology, we are likely to see even more innovative uses emerge over time.

• #3.     What are Cryptocurrencies? - Cryptocurrencies are digital currencies that use cryptography to secure transactions and control the creation of new units. They are decentralized, meaning they are not controlled by any government or central bank.
  
  

  Cryptocurrencies are digital currencies that use cryptography to secure transactions and control the creation of new units. They are decentralized, meaning they are not controlled by any government or central bank. Cryptocurrencies operate on a distributed ledger system known as blockchain technology, which is a public record of all transactions that have ever taken place in the network.

  The most popular cryptocurrency is Bitcoin, but there are many others such as Ethereum, Litecoin, Ripple and Dash. These cryptocurrencies can be used for payments online or exchanged for other currencies like US dollars or Euros. Transactions using cryptocurrencies are usually faster than traditional payment methods and often incur lower fees.

  Cryptocurrency networks also offer users more privacy than traditional banking systems since they do not require personal information to make transactions. This makes them attractive to people who want to keep their financial activities private.

• #4.     What is Mining? - Mining is the process of verifying and recording transactions on the blockchain. Miners use specialized hardware to solve complex mathematical problems in order to earn rewards in the form of newly created coins.
  
  

  Mining is the process of verifying and recording transactions on the blockchain. Miners use specialized hardware to solve complex mathematical problems in order to earn rewards in the form of newly created coins. This process helps ensure that all transactions are valid, secure, and immutable. It also serves as a way for miners to be rewarded for their work.

  The mining process involves solving cryptographic puzzles using powerful computers or specialized hardware called ASICs (Application Specific Integrated Circuits). These puzzles require significant computing power and energy consumption, which makes it difficult for any one miner to dominate the network. As more miners join the network, competition increases and so does security.

  In addition to earning rewards from mining new coins, miners can also receive transaction fees from users who want their transactions processed quickly. The higher fees they charge will incentivize them to prioritize those transactions over others with lower fees.

• #5.     What is a Wallet? - A wallet is a software program that stores the private keys associated with a user’s cryptocurrency address. It is used to send and receive payments, and it is the user’s responsibility to keep the wallet secure.
  
  

  A wallet is a software program that stores the private keys associated with a user’s cryptocurrency address. It is used to send and receive payments, and it is the user’s responsibility to keep the wallet secure. Wallets are typically encrypted with passwords or other forms of authentication, so only those who have access can view its contents. The wallet also contains information about all of the transactions made by its owner.

  Wallets come in many different forms, including desktop wallets, mobile wallets, web-based wallets, hardware wallets and paper wallets. Each type has its own advantages and disadvantages depending on how much security you need for your funds. Desktop wallets are generally considered more secure than online ones since they store your private keys locally on your computer rather than in an online server.

  When using a wallet to store cryptocurrencies, its important to remember that if someone gains access to your private key then they will be able to spend any funds stored in that address. Therefore its essential that users take steps such as setting up two-factor authentication or using strong passwords when creating their accounts.

• #6.     What is a Smart Contract? - A smart contract is a computer program that is stored on the blockchain and can be used to facilitate, verify, and enforce the performance of a contract. It is a secure and immutable way of executing agreements between two or more parties.
  
  

  A smart contract is a computer program that is stored on the blockchain and can be used to facilitate, verify, and enforce the performance of a contract. It is an automated system that allows two or more parties to enter into an agreement without needing any third-party intermediaries. Smart contracts are self-executing agreements written in code which are stored on the blockchain network.

  Smart contracts enable users to exchange money, property, shares, or anything of value in a transparent way while avoiding the services of a middleman. They provide trust between two parties by eliminating counterparty risk and ensuring that all conditions set out in the agreement are met before any transaction takes place. This makes them ideal for use cases such as escrow services, insurance policies, crowdfunding campaigns and other financial transactions.

  The main benefit of using smart contracts is their ability to automate processes with minimal human intervention. By removing manual processing from certain tasks they can reduce costs associated with traditional methods while also increasing efficiency and accuracy.

• #7.     What is a Decentralized Application (DApp)? - A DApp is a computer program that runs on a decentralized network, such as the blockchain. It is a secure and immutable way of creating applications that are not controlled by any single entity.
  
  

  A Decentralized Application (DApp) is a computer program that runs on a decentralized network, such as the blockchain. It is an alternative to traditional applications which are typically controlled by a single entity or organization. DApps provide users with greater autonomy and control over their data, allowing them to interact directly with each other without relying on third-party intermediaries.

  Unlike centralized applications, DApps are not owned or operated by any one person or group. Instead, they rely on distributed networks of computers running open source software protocols in order to function properly. This means that no single user can control the application’s functionality or access its data – instead it is managed collectively by all participants in the network.

  The benefits of using DApps include increased security and privacy due to their decentralized nature; improved transparency since all transactions are recorded publicly; and reduced costs associated with middlemen fees for services like payments processing.

• #8.     What is a Distributed Autonomous Organization (DAO)? - A DAO is a decentralized organization that is run by a set of rules encoded into the blockchain. It is a secure and immutable way of creating organizations that are not controlled by any single entity.
  
  

  A Distributed Autonomous Organization (DAO) is a decentralized organization that operates according to a set of rules encoded into the blockchain. It is an immutable and secure way of creating organizations that are not controlled by any single entity. DAOs can be used for various purposes, such as managing funds, voting on decisions, or even running entire businesses.

  The main advantage of using a DAO is its autonomy; it does not require any human intervention to operate. This means that all decisions made within the organization are based solely on predetermined rules and algorithms rather than subjective opinions or biases. Additionally, since these rules are stored in the blockchain they cannot be changed without consensus from all participants.

  Another benefit of using a DAO is its transparency; all transactions and activities within the organization can be tracked and verified by anyone with access to the blockchain. This ensures accountability among members while also providing greater security against malicious actors.

  Overall, distributed autonomous organizations offer many advantages over traditional forms of governance due to their decentralization, immutability, and transparency. They provide an efficient way for people to collaborate without relying on centralized authorities or intermediaries.

• #9.     What is a Token? - A token is a digital asset that is stored on the blockchain and can be used to represent a variety of things, such as a digital currency, a share in a company, or a unit of ownership.
  
  

  A token is a digital asset that is stored on the blockchain and can be used to represent a variety of things. Tokens are typically created through an Initial Coin Offering (ICO) or other crowdfunding event, where investors purchase tokens in exchange for cryptocurrency or fiat currency. These tokens can then be traded on exchanges, allowing holders to benefit from price appreciation.

  Tokens can also represent ownership of assets such as stocks, bonds, real estate, and even artwork. By using tokens to represent these assets, it allows them to be easily transferred between parties without having to go through traditional intermediaries like banks or brokers. This makes transactions faster and more secure.

  In addition to representing physical assets, tokens can also be used as digital currencies. Cryptocurrencies such as Bitcoin and Ethereum are examples of this type of token-based money system. They allow users to send payments directly from one person to another without needing a third party intermediary.

• #10.     What is a Hard Fork? - A hard fork is a change to the blockchain protocol that is not backwards compatible. It is a secure and immutable way of making changes to the blockchain, and it can result in the creation of a new cryptocurrency.
  
  

  A hard fork is a major change to the blockchain protocol that is not backwards compatible. It involves making changes to the underlying code of the blockchain, which can result in a new cryptocurrency being created. This process requires consensus from all participants on the network, and it ensures that any changes made are secure and immutable.

  The hard fork process allows for improvements or updates to be made to existing blockchains without compromising their security or integrity. For example, if there was an issue with scalability on a particular blockchain, then developers could use a hard fork to create an improved version of the original chain with better performance.

  Hard forks also provide users with more choice when it comes to cryptocurrencies. If two different groups disagree about how best to improve a certain blockchain, they can both initiate separate hard forks and create two distinct versions of the same currency.

• #11.     What is a Soft Fork? - A soft fork is a change to the blockchain protocol that is backwards compatible. It is a secure and immutable way of making changes to the blockchain, and it does not result in the creation of a new cryptocurrency.
  
  

  A soft fork is a change to the blockchain protocol that is backwards compatible. It allows for changes to be made without creating a new cryptocurrency or splitting the existing chain into two separate chains. This type of upgrade can be used to add new features, fix bugs, and improve scalability.

  Soft forks are generally considered safer than hard forks because they do not require all users to upgrade their software in order for the changes to take effect. Instead, only those who wish to use the new features need update their software. Additionally, since no new currency is created during a soft fork, there is less risk of disruption or confusion among users.

  The process of implementing a soft fork involves miners signaling support for it by including specific data in blocks they mine. If enough miners signal support then the network will begin running on the updated version of its protocol and any nodes still running an older version will become incompatible with it.

• #12.     What is a 51% Attack? - A 51% attack is a type of attack on the blockchain where an attacker controls more than 50% of the network’s computing power. It is a secure and immutable way of attacking the blockchain, and it can result in the reversal of transactions.
  
  

  A 51% attack is a type of malicious attack on the blockchain, where an attacker controls more than 50% of the network’s computing power. This gives them control over the majority of the network and allows them to manipulate it in various ways. For example, they can reverse transactions that have already been confirmed by other nodes on the network or prevent new transactions from being added to blocks.

  The security of a blockchain relies heavily on its distributed nature; if one entity has too much control over it, then it becomes vulnerable to manipulation. A 51% attack is particularly dangerous because it can be used to double-spend coins or even rewrite history by reversing previously confirmed transactions. It also makes blockchains less secure overall as attackers could potentially use this method to disrupt operations.

  Fortunately, such attacks are rare due to their high cost and complexity. However, they remain a threat for smaller networks with fewer miners who may not have enough resources available to protect against them.

• #13.     What is a 51% Defense? - A 51% defense is a type of defense against a 51% attack on the blockchain. It is a secure and immutable way of defending the blockchain, and it can be used to prevent the reversal of transactions.
  
  

  A 51% defense is a type of defense against a 51% attack on the blockchain. It works by ensuring that no single entity can control more than 50 percent of the network’s computing power, which would allow them to reverse transactions and double-spend coins. This is done through decentralization, meaning that the network is spread out across many different computers around the world.

  The 51% defense also ensures that all nodes in the network are working together to validate blocks and transactions. This means that if one node attempts to manipulate or tamper with data, it will be rejected by other nodes in the system. As such, this makes it much harder for malicious actors to gain control over a majority of computing power and launch an attack.

  Overall, a 51% defense provides an important layer of security for blockchains as it prevents any single entity from gaining too much control over the network. By making sure no one has too much influence over how things work on the blockchain, users can rest assured their funds are safe from potential attacks.

• #14.     What is a Consensus Algorithm? - A consensus algorithm is a set of rules that are used to reach agreement among the participants in a distributed system. It is a secure and immutable way of ensuring that all participants agree on the state of the system.
  
  

  A consensus algorithm is a set of rules that are used to reach agreement among the participants in a distributed system. It is an essential component of any blockchain-based system, as it ensures that all nodes agree on the state of the network and its data. Consensus algorithms can be divided into two main categories: proof-of-work (PoW) and proof-of-stake (PoS).

  Proof-of-Work algorithms require miners to solve complex mathematical puzzles in order to add new blocks to the chain. This process requires significant computing power, which makes it difficult for malicious actors to manipulate or control the network. The most popular PoW algorithm is Bitcoin’s SHA256.

  Proof-of-Stake algorithms rely on validators who stake their coins in order to validate transactions and create new blocks. Validators are rewarded with transaction fees when they successfully validate a block, but they also risk losing their staked coins if they attempt any malicious activity. Ethereum currently uses a PoS consensus algorithm called Casper.

  Consensus algorithms are designed with security and decentralization in mind, ensuring that no single entity has control over the network or its data. They also provide incentives for users to participate in maintaining the integrity of the blockchain by rewarding them for their efforts.

• #15.     What is a Sidechain? - A sidechain is a blockchain that is linked to the main blockchain. It is a secure and immutable way of creating a separate blockchain that is connected to the main blockchain, and it can be used to facilitate transactions between different blockchains.
  
  

  A sidechain is a blockchain that is linked to the main blockchain. It provides an additional layer of security and immutability, allowing users to securely transfer assets between different blockchains without having to trust a third-party intermediary. Sidechains are also used for scalability purposes, as they can be used to process transactions faster than on the main chain.

  Sidechains are connected to the main blockchain through two-way pegging. This means that when coins or tokens are transferred from one chain to another, they must be locked up in a special address on both chains at once. This ensures that no double spending occurs and allows users to move their funds back and forth between chains with ease.

  Sidechains offer many advantages over traditional methods of transferring assets between blockchains. They provide increased security by eliminating the need for trusting third parties, improved scalability by allowing more transactions per second than would otherwise be possible, and greater flexibility in terms of asset types supported.

• #16.     What is a Lightning Network? - The Lightning Network is a layer-two payment protocol that is built on top of the blockchain. It is a secure and immutable way of creating a network of payment channels that can be used to facilitate fast and low-cost transactions.
  
  

  The Lightning Network is a layer-two payment protocol that is built on top of the blockchain. It enables users to create a network of payment channels, allowing them to make fast and low-cost transactions without having to wait for confirmations from the underlying blockchain.

  The Lightning Network works by creating an off-chain ledger which records all transactions between two parties. This ledger can be updated as often as needed, with each update being recorded in the underlying blockchain. The advantage of this system is that it allows for much faster transaction times than would otherwise be possible on the main chain, while still maintaining security and immutability.

  In addition, because payments are made through these off-chain ledgers rather than directly on the main chain, fees associated with making payments are significantly lower than they would be if done directly on the main chain. This makes it ideal for small or frequent payments where high fees could become prohibitively expensive.

  Overall, the Lightning Network provides a secure and efficient way of making payments quickly and cheaply without sacrificing security or trustlessness. As more people adopt this technology, its potential applications will only continue to grow.

• #17.     What is a Hash Function? - A hash function is a mathematical algorithm that is used to convert data into a fixed-length string of characters. It is a secure and immutable way of creating a unique identifier for a piece of data, and it is used in the blockchain to create a digital fingerprint for each transaction.
  
  

  A hash function is a mathematical algorithm that is used to convert data into a fixed-length string of characters. It works by taking an input, such as a file or message, and running it through the algorithm which produces an output known as a “hash”. This hash is unique for each input and cannot be reversed; if even one bit of the original data changes, then the resulting hash will also change significantly.

  Hash functions are widely used in cryptography and blockchain technology due to their ability to create secure digital fingerprints for any given piece of data. In blockchain networks, hashes are used to identify transactions on the network so that they can be securely stored in blocks without being tampered with or modified. Each transaction has its own unique hash which acts like a digital signature that verifies its authenticity.

  The use of hashes makes it possible for users to trustlessly verify transactions on the blockchain without having access to all of the underlying details. By simply comparing two different hashes, users can quickly determine whether or not they match up – indicating whether or not both pieces of data are identical.

• #18.     What is a Merkle Tree? - A Merkle tree is a data structure that is used to store and verify transactions on the blockchain. It is a secure and immutable way of organizing data, and it is used to create a digital fingerprint for each transaction.
  
  

  A Merkle tree is a data structure that is used to store and verify transactions on the blockchain. It works by taking all of the individual transactions in a block, hashing them together, and then creating a single hash for the entire block. This single hash can be used to quickly verify that all of the individual transactions are valid without having to check each one individually.

  The Merkle tree also provides an additional layer of security by allowing users to prove that their transaction was included in a particular block without revealing any other information about it. This is done through what’s known as “Merkle proofs” which allow users to provide proof-of-inclusion for their transaction without revealing its contents or any other details.

  The Merkle tree has become an essential part of how blockchain technology works, providing both speed and security when verifying transactions. By using this data structure, it allows for faster verification times while still ensuring that all transactions are secure and immutable.

• #19.     What is a Nonce? - A nonce is a random number that is used in the mining process to create a unique hash for each block. It is a secure and immutable way of ensuring that each block is unique, and it is used to prevent double-spending and other attacks on the blockchain.
  
  

  A nonce is a random number that is used in the mining process to create a unique hash for each block. It serves as an important security measure, ensuring that each block on the blockchain is unique and immutable. By using a nonce, miners are able to prevent double-spending and other malicious attacks from occurring on the blockchain.

  The way it works is simple: when miners attempt to mine a new block, they must include a randomly generated number (the nonce) along with their data. This creates an entirely unique hash for each individual block. If any of the data within the block changes even slightly, then its associated hash will also change drastically.

  This makes it impossible for attackers to manipulate or tamper with blocks without being detected by other nodes in the network. As such, nonces play an essential role in keeping transactions secure and preventing fraud on the blockchain.

• #20.     What is a Private Key? - A private key is a secret code that is used to access a user’s cryptocurrency address. It is a secure and immutable way of protecting a user’s funds, and it is the user’s responsibility to keep the private key secure.
  
  

  A private key is a secret code that is used to access a user’s cryptocurrency address. It is an essential part of the security system for cryptocurrencies, as it allows users to securely store and transfer their funds without having to rely on third-party services. Private keys are generated using cryptographic algorithms, which ensures that they remain secure and immutable.

  The private key acts as a digital signature for transactions, verifying the authenticity of each transaction before it can be processed. This means that only the owner of the private key can authorize transactions from their wallet address. As such, it is important for users to keep their private keys safe and secure at all times.

  Private keys are typically stored in wallets or other storage solutions designed specifically for this purpose. These wallets provide additional layers of security by encrypting the data stored within them with strong encryption protocols.