Preface xiii
1. Introduction 1
What Is Bitcoin? 1
History of Bitcoin 4
Bitcoin Uses, Users, and Their Stories 5
Getting Started 6
Choosing a Bitcoin Wallet 6
Quick Start 8
Getting Your First Bitcoin 10
Finding the Current Price of Bitcoin 11
Sending and Receiving Bitcoin 12
2. How Bitcoin Works 15
Transactions, Blocks, Mining, and the Blockchain 15
Bitcoin Overview 15
Buying a Cup of Coffee 16
Bitcoin Transactions 18
Transaction Inputs and Outputs 18
Transaction Chains 19
Making Change 20
Common Transaction Forms 21
Constructing a Transaction 22
Getting the Right Inputs 22
Creating the Outputs 24
Adding the Transaction to the Ledger 25
Bitcoin Mining 26
Mining Transactions in Blocks 27
Spending the Transaction 29
3. Bitcoin Core: The Reference Implementation 31
Bitcoin Development Environment 32
Compiling Bitcoin Core from the Source Code 32
Selecting a Bitcoin Core Release 33
Configuring the Bitcoin Core Build 34
Building the Bitcoin Core Executables 37
Running a Bitcoin Core Node 38
Running Bitcoin Core for the First Time 39
Configuring the Bitcoin Core Node 39
Bitcoin Core Application Programming Interface (API) 43
Getting Information on the Bitcoin Core Client Status 44
Exploring and Decoding Transactions 45
Exploring Blocks 47
Using Bitcoin Core's Programmatic Interface 48
Alternative Clients, Libraries, and Toolkits 51
C/C++ 52
JavaScript 52
Java 52
Python 52
Ruby 53
Go 53
Rust 53
C# 53
Objective-C 53
4. Keys, Addresses 55
Introduction 55
Public Key Cryptography and Cryptocurrency 56
Private and Public Keys 57
Private Keys 58
Public Keys 60
Elliptic Curve Cryptography Explained 60
Generating a Public Key 63
Bitcoin Addresses 64
Base58 and Base58Check Encoding 66
Key Formats 70
Implementing Keys and Addresses in Python 76
Advanced Keys and Addresses 80
Encrypted Private Keys (BIP-38) 80
Pay-to-Script Hash (P2SH) and Multisig Addresses 81
Vanity Addresses 82
Paper Wallets 88
5. Wallets 93
Wallet Technology Overview 93
Nondeterministic (Random) Wallets 94
Deterministic (Seeded) Wallets 95
HD Wallets (BIP-32/BIP-44) 96
Seeds and Mnemonic Codes (BIP-39) 97
Wallet Best Practices 97
Using a Bitcoin Wallet 98
Wallet Technology Details 99
Mnemonic Code Words (BIP-39) 99
Creating an HD Wallet from the Seed 106
Using an Extended Public Key on a Web Store 110
6. Transactions 117
Introduction 117
Transactions in Detail 117
Transactions-Behind the Scenes 118
Transaction Outputs and Inputs 119
Transaction Outputs 121
Transaction Inputs 123
Transaction Fees 126
Adding Fees to Transactions 129
Transaction Scripts and Script Language 131
Turing Incompleteness 131
Stateless Verification 132
Script Construction (Lock + Unlock) 132
Pay-to-Public-Key-Hash (P2PKH) 136
Digital Signatures (ECDSA) 138
How Digital Signatures Work 139
Verifying the Signature 141
Signature Hash Types (SIGHASH) 141
ECDSA Math 143
The Importance of Randomness in Signatures 145
Bitcoin Addresses, Balances, and Other Abstractions 145
7. Advanced Transactions and Scripting 149
Introduction 149
Multisignature 149
Pay-to-Script-Hash (P2SH) 151
P2SH Addresses 153
Benefits of P2SH 154
Redeem Script and Validation 154
Data Recording Output (RETURN) 155
Timelocks 157
Transaction Locktime (nLocktime) 157
Check Lock Time Verify (CLTV) 158
Relative Timelocks 160
Relative Timelocks with nSequence 160
Relative Timelocks with CSV 162
Median-Time-Past 163
Timelock Defense Against Fee Sniping 163
Scripts with Flow Control (Conditional Clauses) 164
Conditional Clauses with VERIFY Opcodes 165
Using Flow Control in Scripts 166
Complex Script Example 167
8. The Bitcoin Network 171
Peer-to-Peer Network Architecture 171
Node Types and Roles 172
The Extended Bitcoin Network 173
Bitcoin Relay Networks 176
Network Discovery 176
Full Nodes 180
Exchanging "Inventory" 181
Simplified Payment Verification (SPV) Nodes 183
Bloom Filters 185
How Bloom Filters Work 186
How SPV Nodes Use Bloom Filters 189
SPV Nodes and Privacy 190
Encrypted and Authenticated Connections 191
Tor Transport 191
Peer-to-Peer Authentication and Encryption 191
Transaction Pools 192
9. The Blockchain 195
Introduction 195
Structure of a Block 196
Block Header 197
Block Identifiers: Block Header Hash and Block Height 197
The Genesis Block 198
Linking Blocks in the Blockchain 200
Merkle Trees 201
Merkle Trees and Simplified Payment Verification (SPV) 207
Bitcoin's Test Blockchains 207
Testnet-Bitcoin's Testing Playground 208
Segnet-The Segregated Witness Testnet 210
Regtest-The Local Blockchain 210
Using Test Blockchains for Development 211
10. Mining and Consensus 213
Introduction 213
Bitcoin Economics and Currency Creation 215
Decentralized Consensus 217
Independent Verification of Transactions 218
Mining Nodes 219
Aggregating Transactions into Blocks 220
The Coinbase Transaction 221
Coinbase Reward and Fees 223
Structure of the Coinbase Transaction 224
Coinbase Data 225
Constructing the Block Header 227
Mining the Block 228
Proof-of-Work Algorithm 228
Target Representation 235
Retargeting to Adjust Difficulty 235
Successfully Mining the Block 237
Validating a New Block 238
Assembling and Selecting Chains of Blocks 239
Blockchain Forks 240
Mining and the Hashing Race 247
The Extra Nonce Solution 249
Mining Pools 250
Consensus Attacks 253
Changing the Consensus Rules 256
Hard Forks 256
Hard Forks: Software, Network, Mining, and Chain 258
Diverging Miners and Difficulty 259
Contentious Hard Forks 260
Soft Forks 261
Criticisms of Soft Forks 262
Soft Fork Signaling with Block Version 262
BIP-34 Signaling and Activation 263
BIP-9 Signaling and Activation 264
Consensus Software Development 266
11. Bitcoin Security 269
Security Principles 269
Developing Bitcoin Systems Securely 270
The Root of Trust 271
User Security Best Practices 272
Physical Bitcoin Storage 273
Hardware Wallets 273
Balancing Risk 273
Diversifying Risk 274
Multisig and Governance 274
Survivability 274
Conclusion 274
12. Blockchain Applications 275
Introduction 275
Building Blocks (Primitives) 276
Applications from Building Blocks 278
Colored Coins 278
Using Colored Coins 279
Issuing Colored Coins 280
Colored Coins Transactions 280
Counterparty 283
Payment Channels and State Channels 284
State Channels-Basic Concepts and Terminology 285
Simple Payment Channel Example 286
Making Trustless Channels 289
Asymmetric Revocable Commitments 292
Hash Time Lock Contracts (HTLC) 296
Routed Payment Channels (Lightning Network) 297
Basic Lightning Network Example 298
Lightning Network Transport and Routing 301
Lightning Network Benefits 303
Conclusion 304
A The Bitcoin Whitepaper
by Satoshi Nakamoto 305
B Transaction Script Language Operators, Constants, and Symbols 317
C Bitcoin Improvement Proposals 323
D Segregated Witness 331
E Bitcore 345
F Pycoin, ku, and tx 349
G Bitcoin Explorer (bx) Commands 359
Index 363