Grokking Bitcoin

480 Pages·2019·16.826 MB·English

by  Kalle Rosenbaum

grokking
Bitcoin

grokking
Bitcoin
Kalle Rosenbaum
Foreword by David A. Harding
MANNING
Shelter ISland
For online information and ordering of this and other Manning books, please visit
www.manning.com. The publisher offers discounts on this book when ordered in
quantity. For more information, please contact
Special Sales Department
Manning Publications Co.
20 Baldwin Road, PO Box 761
Shelter Island, NY 11964
Email: [email protected]
©2019 by Manning Publications Co. All rights reserved.
No part of this publication may be reproduced, stored in a retrieval system, or
transmitted, in any form or by means electronic, mechanical, photocopying,
or otherwise, without prior written permission of the publisher.
Many of the designations used by manufacturers and sellers to distinguish their
products are claimed as trademarks. Where those designations appear in the book,
and Manning Publications was aware of a trademark claim, the designations have
been printed in initial caps or all caps.
Recognizing the importance of preserving what has been written, it is Manning’s
policy to have the books we publish printed on acid-free paper, and we exert
our best efforts to that end. Recognizing also our responsibility to conserve the
resources of our planet, Manning books are printed on paper that is at least 15
percent recycled and processed without the use of elemental chlorine.
Manning Publications Co Development editor: Christina Taylor
20 Baldwin Road Technical development editor: Ozren Harlovic
Shelter Island, NY 11964 Review editor: Ozren Harlovic
Production editor: Lori Weidert
Copy editor: Rebecca Dueul-Gallegos
Proofreader: Tiffany Taylor
Technical proofreader: Jan Goyavaerts
Typesetter: Kevin Callahan
Cover designer: Leslie Haimes
Illustrator: Chuck Larson
ISBN 9781617294648
Printed in the United States of America
1 2 3 4 5 6 7 8 9 10 – SP – 24 23 22 21 20 19
To the love of my life, my wife, Linnéa. Smart, faithful, real.
And to all awesome Bitcoiners everywhere.

contents
foreword xvii
preface xix
acknowledgments xxiii
about this book xxv
Code conventions xxvii
liveBook discussion forum xxviii
Other online resources xxviii
about the author xxix
1 Introduction to Bitcoin 1
What is Bitcoin? 2
The big picture 3
Step 1—Transactions 5
Step 2—The Bitcoin network 6
Step 3—The blockchain 7
Step 4—Wallets 8
Problems with money today 10
Segregation 10
Privacy issues 10
Inflation 11
Borders 12
The Bitcoin approach 13
Decentralized 13
Limited supply 14
Borderless 15
ix
x contents
How is Bitcoin used? 16
Savings 16
Cross-border payments 16
Shopping 17
Speculation 18
Noncurrency uses 19
How is Bitcoin valued? 20
When not to use Bitcoin 20
Other cryptocurrencies 22
2 Cryptographic hash functions
and digital signatures 27
The cookie token spreadsheet 28
Cryptographic hashes 32
Why are cryptographic hash functions useful? 34
How does a cryptographic hash function work? 35
Properties of a cryptographic hash function 36
Illustration of “hard” 37
Some well-known hash functions 39
Exercises 40
Digital signatures 42
Typical use of digital signatures 42
Improving cookie token security 43
Preparation: John generates a key pair 45
John signs his payment 48
Lisa verifies the signature 50
Private key security 51
3 Addresses 61
Cookie-eating habits disclosed 62
Replacing names with public keys 63
New payment process 64
Shortening the public key 66
Hashing the public key to 20 bytes 67
Why SHA256 and RIPEMD160? 68
Avoiding expensive typing errors 70
Base58check 72
Back to privacy 78