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<p>About the Author xi</p> <p>Acknowledgments xiii</p> <p>Foreword xv</p> <p>Prologue xvii</p> <p>Preface xix</p> <p><b>PART ONE: INTRODUCTION AND ECONOMICS 1</b></p> <p><b>CHAPTER 1 Foundations 3</b></p> <p>1.1 Decentralized 4</p> <p>1.2 Open Source 6</p> <p>1.3 Public Asset Ledger 8</p> <p>1.4 It’s Not Only the Currency, It’s the Technology 9</p> <p><b>CHAPTER 2 Technology (Introduction) 11</b></p> <p>2.1 Centralized Database 11</p> <p>2.2 Addresses, Transactions 13</p> <p>2.3 Distributed Database, the Blockchain 15</p> <p>2.4 Wallets 17</p> <p>2.5 The Different Meanings of Bitcoin 18</p> <p><b>CHAPTER 3 Economics 21</b></p> <p>3.1 Medium of Exchange 22</p> <p>3.1.1 Pros 25</p> <p>3.1.2 Cons 26</p> <p>3.2 Store of Value 27</p> <p>3.2.1 Bitcoin as Investment 29</p> <p>3.2.2 Pros 30</p> <p>3.2.3 Cons 31</p> <p>3.3 Unit of Account 32</p> <p>3.4 Deflation 32</p> <p>3.5 Volatility 33</p> <p>3.6 Effect on the Financial Industry and Monetary Policy 35</p> <p>3.7 Regulation 37</p> <p><b>CHAPTER 4 Business Applications 39</b></p> <p>4.1 Money Transfer 39</p> <p>4.2 Exchanges 40</p> <p>4.3 Payment Processors 43</p> <p>4.4 Web Wallets 43</p> <p>4.5 Multisignature Escrow Services 45</p> <p>4.6 Mining 46</p> <p>4.7 ATMs 48</p> <p><b>PART TWO: BITCOIN TECHNOLOGY 49</b></p> <p><b>CHAPTER 5 Public Key Cryptography 51</b></p> <p>5.1 Public Key Encryption 53</p> <p>5.2 Digital Signatures 56</p> <p>5.3 RSA 59</p> <p>5.4 Elliptic Curve Cryptography 62</p> <p>5.4.1 Elliptic Curve Summary 63</p> <p>5.4.2 Elliptic Curve Theory 64</p> <p>5.5 Other Cryptographic Primitives 71</p> <p>5.5.1 Blind Signatures 71</p> <p>5.5.2 Shamir Secret Sharing 72</p> <p>5.6 Bitcoin Addresses 73</p> <p><b>CHAPTER 6 Transactions 77</b></p> <p>6.1 Transaction Scripts 80</p> <p>6.2 Pay-to-address and Pay-to-public-key Transactions 82</p> <p>6.3 Multisignature (m-of-n) Transactions 84</p> <p>6.4 Other Transaction Types 85</p> <p>6.5 Transaction Signature 86</p> <p>6.6 Pay-to-script-hash (P2SH) 89</p> <p>6.7 Standard Transactions 92</p> <p><b>CHAPTER 7 The Blockchain 95</b></p> <p>7.1 Hash Functions 95</p> <p>7.2 Time-stamp 99</p> <p>7.3 Proof-of-work 101</p> <p>7.4 The Blockchain 105</p> <p>7.5 Double-spend and Other Attacks 113</p> <p>7.5.1 Race Attack 115</p> <p>7.5.2 Finney Attack 116</p> <p>7.5.3 Transaction Spamming 116</p> <p>7.6 Merkle Trees 117</p> <p>7.6.1 Transaction Malleability 119</p> <p>7.7 Scalability 120</p> <p><b>CHAPTER 8 Wallets 123</b></p> <p>8.1 Symmetric-key Cryptography 125</p> <p>8.2 Offline Wallets 126</p> <p>8.2.1 External Storage Media 127</p> <p>8.2.2 Paper Wallets 127</p> <p>8.2.3 Offline Devices 129</p> <p>8.2.4 Hardware Wallets 130</p> <p>8.3 Web Wallets 131</p> <p>8.4 Brain Wallets 132</p> <p>8.5 Deterministic Wallets 132</p> <p>8.5.1 Message Authentication Code (MAC) 134</p> <p>8.5.2 Hierarchical Deterministic Wallets 135</p> <p>8.6 Multisignature Wallets 136</p> <p>8.7 Vanity addresses 137</p> <p>8.8 Simplified Payment Verification (SPV) 139</p> <p>8.9 The “Payment Protocol” (BIP 70) 141</p> <p><b>CHAPTER 9 Mining 143</b></p> <p>9.1 Mining Technology 146</p> <p>9.2 Pooled Mining 149</p> <p>9.3 Transaction Fees 154</p> <p>9.4 Selfish Mining 156</p> <p><b>PART THREE: THE CRYPTOCURRENCIES LANDSCAPE 159</b></p> <p><b>CHAPTER 10 The Origins Of Bitcoin 161</b></p> <p>10.1 David Chaum’s Ecash 162</p> <p>10.2 Adam Back’s Hashcash 163</p> <p>10.3 Nick Szabo’s bit gold and Wei Dai’s b-money 164</p> <p>10.4 Sander and Ta-Shma’s Auditable, Anonymous Electronic Cash 165</p> <p>10.5 Hal Finney’s RPOW 167</p> <p>10.6 Satoshi Nakamoto 168</p> <p><b>CHAPTER 11 Alt(ernative) Coins 171</b></p> <p>11.1 Litecoin 172</p> <p>11.2 PeerCoin 173</p> <p>11.3 Namecoin 174</p> <p>11.4 Auroracoin 175</p> <p>11.5 Primecoin 175</p> <p>11.6 Dogecoin 176</p> <p>11.7 Freicoin 177</p> <p>11.8 Other Alt-coins 177</p> <p>11.9 The Case For/Against Alt-coins 178</p> <p><b>CHAPTER 12 Contracts (the Internet of Money or Cryptocurrencies 2.0) 183</b></p> <p>12.1 Digital Assets 183</p> <p>12.2 Smart Property 185</p> <p>12.3 Micropayments 186</p> <p>12.4 Autonomous Agents 187</p> <p>12.5 Other Applications 189</p> <p>12.5.1 Crowd-funding 189</p> <p>12.5.2 External State Contract 190</p> <p>12.5.3 Contract for Differences 190</p> <p>12.5.4 Distributed Exchange 191</p> <p>12.5.5 Deposits 191</p> <p>12.5.6 Saving Addresses 192</p> <p>12.6 Inserting Data into the Blockchain 192</p> <p>12.7 Meta-coins 194</p> <p>12.7.1 Colored Coins 196</p> <p>12.7.2 Counterparty 197</p> <p>12.7.3 Ethereum 199</p> <p>12.7.4 Mastercoin 202</p> <p>12.7.5 Nxt 203</p> <p>12.7.6 Ripple 204</p> <p><b>CHAPTER 13 The Privacy Battle 209</b></p> <p>13.1 Network Analysis 209</p> <p>13.2 Laundry Services 212</p> <p>13.3 Greenlisting 213</p> <p>13.4 Privacy-enhancing Technologies 214</p> <p>13.4.1 CoinJoin 214</p> <p>13.4.2 CoinSwap 215</p> <p>13.4.3 Stealth Addresses 217</p> <p>13.4.4 Merge Avoidance 219</p> <p>13.4.5 Committed Transactions 220</p> <p>13.5 Fully Anonymous Decentralized Currencies 221</p> <p>13.5.1 Zero-knowledge Proofs 221</p> <p>13.5.2 Zero-knowledge Proof of Graph 3-colorability 221</p> <p>13.5.3 Zero-knowledge Proof for the Discrete Logarithm 223</p> <p>13.5.4 Non-interactive Zero-knowledge Proofs 224</p> <p>13.5.5 Accumulators 225</p> <p>13.5.6 Zerocoin 226</p> <p>13.5.7 Zerocash 228</p> <p><b>CHAPTER 14 Odds and Ends 231</b></p> <p>14.1 Other Transaction Protocols 231</p> <p>14.1.1 Micropayment Channels 231</p> <p>14.1.2 Atomic Cross-chain Trading 232</p> <p>14.2 Alternatives to Proof-of-work 233</p> <p>14.2.1 Proof-of-stake 234</p> <p>14.2.2 Proof-of-burn 236</p> <p>14.3 Merged Mining 237</p> <p>14.4 Side-chains 238</p> <p>14.5 Open Transactions 240</p> <p>14.6 Quantum Computing 242</p> <p>14.7 Recent Advances in Cryptography 244</p> <p>14.7.1 Homomorphic Encryption 244</p> <p>14.7.2 Obfuscation 245</p> <p>Bibliography 247</p> <p>Index 259</p>

<p><B>PEDRO FRANCO </B>holds an MSc in Electrical Engineering from ICAI, a BSc in Economics and an MBA from INSEAD. He has been a consultant with McKinsey and Boston Consulting Group, as well as a researcher with IIT, prior to gaining more than 10 years of experience in financial markets, holding Quant and Trading positions in Credit, Counterparty Risk, Inflation and Interest Rates. He has created various mathematical libraries for financial derivatives, and managed teams of software developers. He can be contacted at pfrancobtc@gmail.com.

<p>Bitcoin is a revolutionary digital currency that is arousing great interest within the financial industry. Presenting a modern approach to the secure transfer of value using cryptography, this currency also challenges the basic assumptions on which the current global financial system rests. <p><i>Understanding Bitcoin </i>gives financial professionals a comprehensive resource and technical guide to the cryptography, engineering and economic development of Bitcoin and other cryptocurrencies.Written by Pedro Franco, this accessible text explores the supporting economic realities and technological advances of the currency, and presents positive and negative arguments from various economic schools regarding its viability. <p>The author includes a step-by-step description of how Bitcoin works, starting with public key cryptography. He goes on to explain how transactions are processed, exploring the blockchain and reviewing how the wallet and mining technologies are structured. This vital resource reviews Bitcoin from the broader perspective of digital currencies and explores historical attempts at cryptographic currencies, all the way through to innovative applications such as decentralized exchanges or autonomous agents. <p><i>Understanding Bitcoin</i> explores the ongoing tension between those who want to break Bitcoin’s privacy by using data mining techniques and those dedicated to creating technologies that will increase its effectiveness. <p>This technical and accessible guide offers a clear understanding of Bitcoin as a monetary phenomenon with dramatic implications for monetary policy.

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