Mastering Bitcoin: Unlocking Digital Cryptocurrencies
by Andreas M. Antonopoulos
30 popular highlights from this book
Key Insights & Memorable Quotes
Below are the most popular and impactful highlights and quotes from Mastering Bitcoin: Unlocking Digital Cryptocurrencies:
By the time you look a few hundred feet down, you are looking at a snapshot of the past that has remained undisturbed for millions of years. In the blockchain, the most recent few blocks might be revised if there is a chain recalculation due to a fork. The top six blocks are like a few inches of topsoil. But once you go more deeply into the blockchain, beyond six blocks, blocks are less and less likely to change.
Bitcoin experts argue that deflation is not bad per se. Rather, deflation is associated with a collapse in demand because that is the only example of deflation we have to study.
Bitcoin is often mistakenly characterized as “anonymous” currency. In fact, it is relatively easy to connect identities to bitcoin addresses and, using big-data analytics, connect addresses to each other to form a comprehensive picture of someone’s bitcoin spending habits.
Bitcoin consists of: A decentralized peer-to-peer network (the bitcoin protocol) A public transaction ledger (the blockchain) A set of rules for independent transaction validation and currency issuance (consensus rules) A mechanism for reaching global decentralized consensus on the valid blockchain (Proof-of-Work algorithm)
Bitcoin’s Test Blockchains You might be surprised to learn that there is more than one bitcoin blockchain. The “main” bitcoin blockchain, the one created by Satoshi Nakamoto on January 3rd, 2009, the one with the genesis block we studied in this chapter, is called mainnet. There are other bitcoin blockchains that are used for testing purposes: at this time testnet, segnet, and regtest. Let’s look at each in turn. Testnet — Bitcoin’s Testing Playground Testnet is the name of the test blockchain, network, and currency that is used for testing purposes. The testnet is a fully featured live P2P network, with wallets, test bitcoins (testnet coins), mining, and all the other features of mainnet. There are really only two differences: testnet coins are meant to be worthless and mining difficulty should be low enough that anyone can mine testnet coins relatively easily (keeping them worthless). Any software development that is intended for production use on bitcoin’s mainnet should first be tested on testnet with test coins. This protects both the developers from monetary losses due to bugs and the network from unintended behavior due to bugs.
The purpose of mining is not the creation of new bitcoin. That’s the incentive system. Mining is the mechanism by which bitcoin’s security is decentralized.
The higher fee is not because Eugenia is spending more money, but because her transaction is more complex and larger in size — the fee is independent of the transaction’s bitcoin value.
Transaction fees are calculated based on the size of the transaction in kilobytes, not the value of the transaction in bitcoin. Overall,
The digital keys in a user’s wallet are completely independent of the bitcoin protocol and can be generated and managed by the user’s wallet software without reference to the blockchain or access to the Internet.
The concept of a balance is created by the wallet application. The wallet calculates the user’s balance by scanning the blockchain and aggregating the value of any UTXO the wallet can spend with the keys it controls. Most
Elliptic curve multiplication is a type of function that cryptographers call a “trap door” function: it is easy to do in one direction (multiplication) and impossible to do in the reverse direction (division). The owner of the private key can easily create the public key and then share it with the world knowing that no one can reverse the function and calculate the private key from the public key. This mathematical trick becomes the basis for unforgeable and secure digital signatures that prove ownership of bitcoin funds.
Paper wallets can be generated easily using a tool such as the client-side JavaScript generator at bitaddress.org. This page contains all the code necessary to generate keys and paper wallets, even while completely disconnected from the internet. To use it, save the HTML page on your local drive or on an external USB flash drive. Disconnect from the internet and open the file in a browser. Even better, boot your computer using a pristine operating system, such as a CD-ROM bootable Linux OS. Any keys generated with this tool while offline can be printed on a local printer over a USB cable (not wirelessly), thereby creating paper wallets whose keys exist only on the paper and have never been stored on any online system. Put these paper wallets in a fireproof safe and “send” bitcoin to their bitcoin address, to implement a simple yet highly effective “cold storage” solution. Figure 4-8 shows a paper wallet generated from the bitaddress.org site.
The word “mining” is somewhat misleading. By evoking the extraction of precious metals, it focuses our attention on the reward for mining, the new bitcoin created in each block. Although mining is incentivized by this reward, the primary purpose of mining is not the reward or the generation of new coins. If you view mining only as the process by which coins are created, you are mistaking the means (incentives) as the goal of the process. Mining is the mechanism that underpins the decentralized clearinghouse, by which transactions are validated and cleared. Mining is the invention that makes bitcoin special, a decentralized security mechanism that is the basis for P2P digital cash.
Bitcoin creates digital assets that have intrinsic value and can be stolen and diverted to new owners instantly and irrevocably. This creates a massive incentive for hackers.
The genesis block contains a hidden message within it. The coinbase transaction input contains the text “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.” This
When bitcoin was created by Satoshi Nakamoto, the software was actually completed before the whitepaper reproduced in Appendix A was written. Satoshi wanted to make sure it worked before writing about it. That first implementation, then simply known as “Bitcoin” or “Satoshi client,” has been heavily modified and improved. It has evolved into what is known as Bitcoin Core, to differentiate it from other compatible implementations. Bitcoin Core is the reference implementation of the bitcoin system, meaning that it is the authoritative reference on how each part of the technology should be implemented. Bitcoin Core implements all aspects of bitcoin, including wallets, a transaction and block validation engine, and a full network node in the peer-to-peer bitcoin network.
At the time of this writing, the difficulty is so high that it is profitable only to mine with application-specific integrated circuits (ASIC), essentially hundreds of mining algorithms printed in hardware, running in parallel on a single silicon chip.
From now on, if you see a multisig unlocking script, you should expect to see an extra 0 in the beginning, whose only purpose is as a workaround to a bug that accidentally became a consensus rule.
A payment channel is a state channel where the state being altered is the balance of a virtual currency.
Fortunately, bitcoin also creates the incentives to improve computer security. Whereas previously the risk of computer compromise was vague and indirect, bitcoin makes these risks clear and obvious. Holding bitcoin on a computer serves to focus the user’s mind on the need for improved computer security.
Serialization is the process of converting the internal representation of a data structure into a format that can be transmitted one byte at a time, also known as a byte stream. Serialization
Bitcoin reaches consensus every 10 minutes about the state of the ledger as it existed in the past.
The bitcoin transaction script language, called Script, is a Forth-like reverse-polish notation stack-based execution language. If that sounds like gibberish, you probably haven’t studied 1960s programming languages, but that’s ok —
If an UTXO is larger than the desired value of a transaction, it must still be consumed in its entirety and change must be generated in the transaction. In
outputs are discrete and indivisible units of value, denominated in integer satoshis. An
As a best practice, the level-1 children of the master keys are always derived through the hardened derivation, to prevent compromise of the master keys.
Deterministic, or “seeded,” wallets are wallets that contain private keys that are all derived from a common seed, through the use of a one-way hash function. The
Although the Bitcoin Core client includes a Type-0 wallet, using this wallet is discouraged by developers of Bitcoin Core.
the bitcoin network. Bitcoin users communicate with each other using the bitcoin protocol primarily via the internet, although other transport networks can also be used. The bitcoin protocol stack, available as open source software, can be run on a wide range of computing
Jing’s mining node then fills the rest of the block up to the maximum block size (MAX_BLOCK_SIZE in the code), with transactions that carry at least the minimum fee, prioritizing those with the highest fee per kilobyte of transaction. If there is any space remaining in the block, Jing’s mining node might choose to fill it with no-fee transactions. Some miners choose to mine transactions without fees on a best-effort basis. Other miners may choose to ignore transactions without fees.
