Chapter 1: What is a bitcoin?
Why Bitcoin?
Paper notes and metal coins are annoying and inconvenient, and we have the
Internet now. So digital money sounds like a useful idea.
The solution the developed world has mostly come to is just using our banks –
you have an account, and you can move money to other people’s accounts, via
debit card, credit card, PayPal or whatever. The central authority means it’s
sensibly regulated, errors and thefts can be reversed and so on. It’s also a smooth
transition from paper money – the same thing, but you can do new things with it.
But this isn’t a complete solution; a shop’s card reader could be down, your
payment gateway might charge fees, you may want to send money to someone
not on the same banking network, you value your privacy, checking in with your
bank every time gets annoying. So a form of digital cash would be nice too.
Bitcoin is a cryptocurrency: a thing on the Internet which lets you exchange
unique digital objects. The objects would take approximately forever to fake; so
if we assign the objects a value, we can exchange them in a manner something
like we do money. It’s decentralised, so you can send money without having to
go through a central clearing house.
Bitcoin’s transaction ledger, the blockchain, is touted as immutable: nobody
can alter it without it being obvious that it was tampered with. The idea is that
there’s no central control, anyone can run a Bitcoin node and be part of the
network, nobody can block or reverse your transactions and you don’t have to
take anyone’s word for the state of the system.
What you have when you have “a bitcoin”
You know what feels like “money” to you. You can earn it, you can spend it on
all manner of things, you can save it for the future, you can invest it. It might be
in a bank account with a card, or notes and coins in your pocket – it still feels
like a pound or a dollar to you.
In practice, bitcoins are a bit like money in a bank account with a debit card,
except without any sort of safety net – it’s all unregulated and uninsured, there’s
no way to reverse a transaction, and there’s no customer service.
If you “have” bitcoins, you don’t actually have them as things on your
computer. What you’ve got is a Bitcoin address (like a bank account number)
and the key to that address (another number, which works like the PIN to the first
number).
2 The Bitcoin address is mentioned in transactions on the blockchain;
the key is the unique thing you have that makes your bitcoins yours.
To send bitcoins from your address to another address (a bit like sending
money over PayPal), you generate a transaction that is sent out into the network
and added to the next block of transactions. Once it’s in a block, that transaction
is publicly visible on the blockchain forever.
A wallet is where you keep your keys. Usually it’s a program which generates
and manages addresses, and presents you with the balances. You can generate a
new address, and its matching key, any time you like.
You can keep your bitcoins’ keys in a hot wallet (like a current account),
running on a computer attached to the Internet, or in a cold wallet (like keeping
money in a sock under your bed), which might be on a computer not attached to
the Internet, or could just be the keys themselves stored on a USB stick or even
printed out on paper.
If you lose the key, your bitcoins are lost forever. If someone else gets the key,
they can take your bitcoins. If you send bitcoins to a nonexistent address, they’re
lost forever. If you send bitcoins to the wrong address, you can’t reverse it.
Bitcoin security can be very technical, difficult and unforgiving; most people just
keep their bitcoins on an exchange. These have their own problems, as we’ll see
later.
The blockchain
Bitcoin transactions are grouped into blocks. Each block has a cryptographic
hash, a number which is quickly calculated and serves as a check value – like the
last digit of a book’s ISBN, or the last digit of your credit card, but longer – to
verify that a chunk of data is the chunk you think it is.
The hash will be completely different if there’s even the slightest change in the
data; as such, two things with the same hash are routinely assumed to be
identical.
Advocates describe Bitcoin as “secured by math.” This is because
cryptography works on arithmetic that is fast going forward and impossibly slow

Attack of the 50 Foot Blockchain: Bitcoin, Blockchain, Ethereum & Smart Contracts 

David Gerard