Keys come in pairs consisting of a private (secret) key and a public key. Think of the public key as similar to a bank account number and the private key as similar to the secret PIN, or signature on a check, that provides control over the account. These digital keys are very rarely seen by the users of bitcoin. For the most part, they are stored inside the wallet file and managed by the bitcoin wallet software.
In the payment portion of a bitcoin transaction, the recipient’s public key is represented by its digital fingerprint, called a bitcoin address, which is used in the same way as the beneficiary name on a check (i.e., “Pay to the order of”). In most cases, a bitcoin address is generated from and corresponds to a public key. However, not all bitcoin addresses represent public keys; they can also represent other beneficiaries such as scripts. This way, bitcoin addresses abstract the recipient of funds, making transaction destinations flexible, similar to paper checks: a single payment instrument that can be used to pay into people’s accounts, pay into company accounts, pay for bills, or pay to cash. The bitcoin address is the only representation of the keys that users will routinely see, because this is the part they need to share with the world.
Mastering Bitcoin - PROGRAMMING THE OPEN BLOCKCHAIN
by Andreas M. Antonopoulos
#masteringbitcoin #17 
Most bitcoin transactions requires a valid digital signature to be included in the blockchain, which can only be generated with a secret key; therefore, anyone with a copy of that key has control of the bitcoin. The digital signature used to spend funds is also referred to as a “witness”, a term used in cryptography. The witness data in a bitcoin transaction testifies to the true ownership of the funds being spent.
Mastering Bitcoin - PROGRAMMING THE OPEN BLOCKCHAIN
by Andreas M. Antonopoulos
#masteringbitcoin #16 
Ownership of bitcoin is established through digital keys, bitcoin addresses, and digital signatures. The digital keys are not actually stored in the network, but are instead created and stored by users in a file, or simple database, called a wallet. 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. Keys enable many of the interesting properties of bitcoin, including decentralized trust and control, ownership attestation, and the cryptographic-proof security model.
Mastering Bitcoin - PROGRAMMING THE OPEN BLOCKCHAIN
by Andreas M. Antonopoulos
#masteringbitcoin #15 
You may have heard that bitcoin is based on cryptography, which is a branch of mathematics used extensively in computer security. Cryptography means “secret writing” in Greek, but the science of cryptography encompasses more than just secret writing, which is referred to as encryption. Cryptography can also be used to prove knowledge of a secret without revealing that secret (digital signature), or prove the authenticity of data (digital fingerprint). These types of cryptographic proofs are the mathematical tools critical to bitcoin and used extensively in bitcoin applications.
Mastering Bitcoin - PROGRAMMING THE OPEN BLOCKCHAIN
by Andreas M. Antonopoulos
#masteringbitcoin #14 
The bitcoin system, unlike traditional banking and payment systems, is based on decentralized trust. Instead of a central trusted authority, in bitcoin, trust is achieved as an emergent property from the interactions of different participants in the bitcoin system.
Mastering Bitcoin - PROGRAMMING THE OPEN BLOCKCHAIN
by Andreas M. Antonopoulos
#masteringbitcoin #13
Bitcoin is a protocol that can be accessed using a client application that speaks the protocol. A “bitcoin wallet” is the most common user interface to the bitcoin system, just like a web browser is the most common user interface for the HTTP protocol. There are many implementations and brands of bitcoin wallets, just like there are many brands of web browsers (Chrome, Safari, Firefox, and Internet Explorer). There is also a reference implementation of the bitcoin protocol that includes a wallet, known as the “Satoshi Client” or “Bitcoin Core,” which is derived from the original implementation written by Satoshi Nakamoto.
Mastering Bitcoin - PROGRAMMING THE OPEN BLOCKCHAIN
by Andreas M. Antonopoulos
#masteringbitcoin #12
A Solution to a Distributed Computing Problem
Satoshi Nakamoto’s invention is also a practical and novel solution to a problem in distributed computing, known as the “Byzantine Generals Problem.” Briefly, the problem consists of trying to agree on a course of action or the state of a system by exchanging information over an unreliable and potentially compromised network. Satoshi Nakamoto’s solution, which uses the concept of Proof-of-Work to achieve consensus without a central trusted authority, represents a breakthrough in distributed computing and has wide applicability beyond currency. It can be used to achieve consensus on decentralized networks to prove the fairness of elections, lotteries, asset registries, digital notarization, and more.
Mastering Bitcoin - PROGRAMMING THE OPEN BLOCKCHAIN
by Andreas M. Antonopoulos
#masteringbitcoin #11
Satoshi Nakamoto withdrew from the public in April 2011, leaving the responsibility of developing the code and network to a thriving group of volunteers. The identity of the person or people behind bitcoin is still unknown. However, neither Satoshi Nakamoto nor anyone else exerts individual control over the bitcoin system, which operates based on fully transparent mathematical principles, open source code, and consensus among participants. The invention itself is groundbreaking and has already spawned new science in the fields of distributed computing, economics, and econometrics.
Mastering Bitcoin - PROGRAMMING THE OPEN BLOCKCHAIN
by Andreas M. Antonopoulos
#masteringbitcoin #10
The bitcoin network started in 2009, based on a reference implementation published by Nakamoto and since revised by many other programmers. The implementation of the Proof-of-Work algorithm (mining) that provides security and resilience for bitcoin has increased in power exponentially, and now exceeds the combined processing power of the world’s top supercomputers. Bitcoin’s total market value has at times exceeded $35 billion US dollars, depending on the bitcoin-to-dollar exchange rate. The largest transaction processed so far by the network was $150 million US dollars, transmitted instantly and processed without any fees.
Mastering Bitcoin - PROGRAMMING THE OPEN BLOCKCHAIN
by Andreas M. Antonopoulos
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History of Bitcoin
Bitcoin was invented in 2008 with the publication of a paper titled “Bitcoin: A Peer- to-Peer Electronic Cash System,” written under the alias of Satoshi Nakamoto. Nakamoto combined several prior inventions such as b-money and HashCash to create a completely decentralized electronic cash system that does not rely on a central authority for currency issuance or settlement and validation of transactions. The key innovation was to use a distributed computation system (called a “Proof-of-Work” algorithm) to conduct a global “election” every 10 minutes, allowing the decentralized network to arrive at consensus about the state of transactions. This elegantly solves the issue of double-spend where a single currency unit can be spent twice. Previously, the double-spend problem was a weakness of digital currency and was addressed by clearing all transactions through a central clearinghouse.
Mastering Bitcoin - PROGRAMMING THE OPEN BLOCKCHAIN
by Andreas M. Antonopoulos
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Digital Currencies Before Bitcoin
The emergence of viable digital money is closely linked to developments in cryptography. This is not surprising when one considers the fundamental challenges involved with using bits to represent value that can be exchanged for goods and services. Three basic questions for anyone accepting digital money are:
1. Can I trust that the money is authentic and not counterfeit?
2. Can I trust that the digital money can only be spent once (known as the “double-spend” problem)?
3. Can I be sure that no one else can claim this money belongs to them and not me?
Issuers of paper money are constantly battling the counterfeiting problem by using increasingly sophisticated papers and printing technology. Physical money addresses the double-spend issue easily because the same paper note cannot be in two places at once. Of course, conventional money is also often stored and transmitted digitally. In these cases, the counterfeiting and double-spend issues are handled by clearing all electronic transactions through central authorities that have a global view of the currency in circulation. For digital money, which cannot take advantage of esoteric inks or holographic strips, cryptography provides the basis for trusting the legitimacy of a user’s claim to value. Specifically, cryptographic digital signatures enable a user to sign a digital asset or transaction proving the ownership of that asset. With the appropriate architecture, digital signatures also can be used to address the double-spend issue.
When cryptography started becoming more broadly available and understood in the late 1980s, many researchers began trying to use cryptography to build digital currencies. These early digital currency projects issued digital money, usually backed by a national currency or precious metal such as gold.
Although these earlier digital currencies worked, they were centralized and, as a result, were easy to attack by governments and hackers. Early digital currencies used a central clearinghouse to settle all transactions at regular intervals, just like a traditional banking system. Unfortunately, in most cases these nascent digital currencies were targeted by worried governments and eventually litigated out of existence. Some failed in spectacular crashes when the parent company liquidated abruptly. To be robust against intervention by antagonists, whether legitimate governments or criminal elements, a decentralized digital currency was needed to avoid a single point of attack. Bitcoin is such a system, decentralized by design, and free of any central authority or point of control that can be attacked or corrupted.
Mastering Bitcoin - PROGRAMMING THE OPEN BLOCKCHAIN
by Andreas M. Antonopoulos
#masteringbitcoin #7
Behind the scenes, bitcoin is also the name of the protocol, a peer-to-peer network, and a distributed computing innovation. The bitcoin currency is really only the first application of this invention. Bitcoin represents the culmination of decades of research in cryptography and distributed systems and includes four key innovations brought together in a unique and powerful combination. 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 (con‐ sensus rules).
• A mechanism for reaching global decentralized consensus on the valid block‐ chain (Proof-of-Work algorithm).
Mastering Bitcoin - PROGRAMMING THE OPEN BLOCKCHAIN
by Andreas M. Antonopoulos
#masteringbitcoin #6
The bitcoin protocol includes built-in algorithms that regulate the mining function across the network. The difficulty of the processing task that miners must perform is adjusted dynamically so that, on average, someone succeeds every 10 minutes regardless of how many miners (and how much processing) are competing at any moment. The protocol also halves the rate at which new bitcoin are created every 4 years, and limits the total number of bitcoin that will be created to a fixed total just below 21 million coins. The result is that the number of bitcoin in circulation closely follows an easily predictable curve that approaches 21 million by the year 2140. Due to bitcoin’s diminishing rate of issuance, over the long term, the bitcoin currency is deflationary. Furthermore, bitcoin cannot be inflated by “printing” new money above and beyond the expected issuance rate.
Mastering Bitcoin - PROGRAMMING THE OPEN BLOCKCHAIN
by Andreas M. Antonopoulos
#masteringbitcoin #5
Bitcoin is a distributed, peer-to-peer system. As such there is no “central” server or point of control. Bitcoin are created through a process called “mining,” which involves competing to find solutions to a mathematical problem while processing bitcoin transactions. Any participant in the bitcoin network (i.e., anyone using a device running the full bitcoin protocol stack) may operate as a miner, using their computer’s processing power to verify and record transactions. Every 10 minutes, on average, a bitcoin miner is able to validate the transactions of the past 10 minutes and is rewarded with brand new bitcoin. Essentially, bitcoin mining decentralizes the currency-issuance and clearing functions of a central bank and replaces the need for any central bank.
Mastering Bitcoin - PROGRAMMING THE OPEN BLOCKCHAIN
by Andreas M. Antonopoulos
#masteringbitcoin #4
Unlike traditional currencies, bitcoin are entirely virtual. There are no physical coins or even digital coins per se. The coins are implied in transactions that transfer value from sender to recipient. Users of bitcoin own keys that allow them to prove ownership of bitcoin in the bitcoin network. With these keys they can sign transactions to unlock the value and spend it by transferring it to a new owner. Keys are often stored in a digital wallet on each user’s computer or smartphone. Possession of the key that can sign a transaction is the only prerequisite to spending bitcoin, putting the control entirely in the hands of each user.
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by Andreas M. Antonopoulos
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Users can transfer bitcoin over the network to do just about anything that can be done with conventional currencies, including buy and sell goods, send money to peo‐ ple or organizations, or extend credit. Bitcoin can be purchased, sold, and exchanged for other currencies at specialized currency exchanges. Bitcoin in a sense is the per‐ fect form of money for the internet because it is fast, secure, and borderless.
Mastering Bitcoin - PROGRAMMING THE OPEN BLOCKCHAIN
by Andreas M. Antonopoulos
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What Is Bitcoin?
Bitcoin is a collection of concepts and technologies that form the basis of a digital money ecosystem. Units of currency called bitcoin are used to store and transmit value among participants in the bitcoin network. Bitcoin users communicate with each other using the bitcoin protocol primarily via the internet, although other trans‐ port networks can also be used. The bitcoin protocol stack, available as open source software, can be run on a wide range of computing devices, including laptops and smartphones, making the technology easily accessible.
Mastering Bitcoin - PROGRAMMING THE OPEN BLOCKCHAIN
by Andreas M. Antonopoulos
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