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Cryptocurrency: How Bitcoin and Digital Money are Challenging the Global Economic Order
‘If the word ‘blockchain’ makes you want to call a plumber, or you think Satoshi is some kind of raw fish, you need to read Cryptocurrency today. If you're already a bit-convert, you'll still learn a lot’ Niall Ferguson, author of The Ascent of Money1988 saw the birth of the internet. 2008 gave us bitcoin. Today, cybercurrencies are changing the world we live in. What would a world without banks, credit cards or national currencies look like for all of us?For centuries, the system that governs how money works has stayed the same. Now there’s an alternative, and it puts us on the cusp of a revolution that could reshape our world. At the heart of this lie, cryptocurrencies, a technology with the transformative potential of the printing press or the internet. They bypass the elites and cut out the gatekeepers. Unlike traditional money, they don’t have a nationality, they’re digital and democratic. They are also lawless.From Silicon Valley to the streets of Beijing, this is a book about a revolution in the making, a story of human invention, and a guide to the future.‘Fascinating’ The Times‘Not only demystifies and explains bitcoin, but shows where it fits into the cultural zeitgeist and where it's pointed, and what that may mean for our financial system’ John Mauldin, New York Times bestselling author‘I can think of no better guide to what the future holds’ Eswar Prasad, author of The Dollar Trap
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First published January 27, 2015
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September 12, 2020
Competing For Trust
Just as light is considered as both a particle and a wave in modern physics, the new forms of exchange that have been developed using the technology of the Internet are both currencies and commodities. This is another way of saying that neither in physics nor economics do we have an adequate description of either light or money, although we might temporise and muddle on regardless.
Surprisingly perhaps, we may be further ahead in developing a unified theory of money thanks to the 'experiments' that have been undertaken over the last two decades that involve so called cryptocurrencies - DigiCash, bit-gold, b-money, hashcash and Bitcoin among many others. What this experience shows is that money isn't really either a 'medium of exchange', that is a special kind of thing which neutrally denominates the value of other sorts of things. Nor is it really a 'store of value' that is a commodity like gold which can from time to time be converted into or even used as currency.
Rather money is in reality 'merely' an entirely symbolic entry in a ledger, that is a system of rights and obligations, that is accepted as accurate and trustworthy in a community. It is the perceived integrity of the ledger that is the essential condition for money to exist. Whether it exists as a currency or a commodity is a secondary consideration at best. If nothing else, this is the manifest lesson of both the successes and failures of bitcoin technology in its most general applications.*
That is the story of this book. And like the best of post-modernist fiction, it is a story without a definitive denouement. No one can predict the ledgers that will be created and trusted. There are good reasons to trust the (still evolving) system of regulated money that is based in banking and governmental control (it works most of the time for most people in the developed world). And there are equally good reasons to mistrust it as well (most of the world is in fact excluded and governments have a natural tendency to abuse their power).
And the same can be said of the new cryptocurrencies (the logical unassailability of distributed blockchain technology doesn't guarantee the integrity of the software which puts this logic into commercial practice nor does it ensure the integrity of the necessary connections - dealers, exchanges, storage facilities etc. - between any cryptocurrency and the rest of the world).
So whatever the outcome, the future of money is going to involve both a system of regulation and a less than free-for-all proliferation of ledgers. Minimally, the competition for trust will be interesting. Let's hope it isn't disastrous as well. To the extent that Goldman Sachs is involved, my hope diminishes.
*Ensuring the integrity of the ledger requires just about every philosophical strategy available in the epistemological playbook. See here for some details: https://www.goodreads.com/review/show...
Just as light is considered as both a particle and a wave in modern physics, the new forms of exchange that have been developed using the technology of the Internet are both currencies and commodities. This is another way of saying that neither in physics nor economics do we have an adequate description of either light or money, although we might temporise and muddle on regardless.
Surprisingly perhaps, we may be further ahead in developing a unified theory of money thanks to the 'experiments' that have been undertaken over the last two decades that involve so called cryptocurrencies - DigiCash, bit-gold, b-money, hashcash and Bitcoin among many others. What this experience shows is that money isn't really either a 'medium of exchange', that is a special kind of thing which neutrally denominates the value of other sorts of things. Nor is it really a 'store of value' that is a commodity like gold which can from time to time be converted into or even used as currency.
Rather money is in reality 'merely' an entirely symbolic entry in a ledger, that is a system of rights and obligations, that is accepted as accurate and trustworthy in a community. It is the perceived integrity of the ledger that is the essential condition for money to exist. Whether it exists as a currency or a commodity is a secondary consideration at best. If nothing else, this is the manifest lesson of both the successes and failures of bitcoin technology in its most general applications.*
That is the story of this book. And like the best of post-modernist fiction, it is a story without a definitive denouement. No one can predict the ledgers that will be created and trusted. There are good reasons to trust the (still evolving) system of regulated money that is based in banking and governmental control (it works most of the time for most people in the developed world). And there are equally good reasons to mistrust it as well (most of the world is in fact excluded and governments have a natural tendency to abuse their power).
And the same can be said of the new cryptocurrencies (the logical unassailability of distributed blockchain technology doesn't guarantee the integrity of the software which puts this logic into commercial practice nor does it ensure the integrity of the necessary connections - dealers, exchanges, storage facilities etc. - between any cryptocurrency and the rest of the world).
So whatever the outcome, the future of money is going to involve both a system of regulation and a less than free-for-all proliferation of ledgers. Minimally, the competition for trust will be interesting. Let's hope it isn't disastrous as well. To the extent that Goldman Sachs is involved, my hope diminishes.
*Ensuring the integrity of the ledger requires just about every philosophical strategy available in the epistemological playbook. See here for some details: https://www.goodreads.com/review/show...
November 11, 2016
This is a tremendous introduction to Bitcoin. If you are not technically minded, it's as good as you could possibly hope for.
On the other hand, if you are a bit of a technophile, perhaps you may want to look for the fine detail somewhere else.
First comes all the necessary background. You get a thorough introduction on what money is, or rather what it is that that turns something into money, you get an introduction to the biosphere out of which Bitcoin sprung, including a long list of its predecessors, and that part of the book is rounded up by a brief history of the "genesis" of Bitcoin itself.
Next comes an explanation of the Blockchain. Problem #1 with digital money is "how do I know this money is good money" and problem #2 is "how do I know that you are not presenting this good money twice at the same time to make two purchases." The Blockchain is a technology that puts together four pre-existing technologies in an inventive way, to incentivise independent agents to solve these two problems:
1. Public-key encryption
2. The hash
3. The peer-to-peer network of "nodes"
4. Proof of work
Feel free to skip if you know / to set me right if I've understood it wrong -it's not all there in the book and I've had to fill in the blanks myself by spending time on the Internet
--------------------------------
First, public-key encryption:
This is a fantastic new way to write coded messages. The simplest one, RSA, works out as follows:
1. Take two prime numbers and multiply them with one another 3 x 23 = 69
2. Subtract one from each and multiply them again with one another 2 x 22 = 44
3. Add one to the second number 44 + 1 = 45
4. Find two numbers that don't have any common factors and multiply to this third number 9 x 5 = 45
5. You're done. The public key is (9, 69) and the private key is (5, 69). To encrypt do mod(x^9,69) and it turns out that (mod(mod(x^9,69))^5,69) = x
So, for example, suppose I want number 20 to be my message
20^9= 512000000000 and mod(512000000000,69) = 5. So the coded way to say "20" is "5"
But 5^5 = 3125 and mod (3125,69) = 20, so, lo and behold, "5" is decoded as "20"
The beauty of this code is that if I pick two very large prime numbers a and b, NOBODY has the computing power to factorize a x b. And if they are very big, then (a -1) x (b - 1) can have a very wide choice of co-prime numbers c and d such that c x d = (a - 1) x (b - 1) + 1.
Ergo, if I give away (d, a x b) nobody has the computing power to figure out what c is. So I can put out there (d, a x b) as a code for anybody in the world to send me a message. They can post it on the Internet. And only I can break the code. Even better, even if somebody out there rats me out and says: "here's how to encode messages for Athan to read" that still does not help the CIA read my messages.
More prosaically, you can send me Bitcoin and you can sign it with my public key. Everybody can verify that it is my Bitcoin, because my Bitcoin addresss is (or is derivable from) my public key. But only I can turn around and assign the Bitcoin to somebody else, because only I have the private key that is necessary to do so. Neat, huh?
It all kind of breaks down if somebody one day writes a computer that can calculate hyper-fast and goes through all the numbers in the world, but the fastest computers on earth would currently take longer to break a good-enough code than mankind has existed! (It helps that raising to a power is not cake)
N.B. The above is merely an example; Bitcoin does not use RSA, it uses elliptic curves-based encryption, which (among other advantages) obviates the need to change private key every time you've changed your public key.
Second, the hash:
The hash is a 26 to 34-character string that is the output of a function that generates a fixed-length alphanumeric representation of the data it received. To build it I need input (example 1: the sentence "to be or not to be"; example 2: the complete works of William Shakespeare) and I need a "hashing" algorithm. The big deal here is that "hashing" always brings the same input to the same short string of characters.
My wallet is the place where I keep my Bitcoin. At all points in time my wallet has a public key and a private key. The rest of the planet knows my wallet by the 26 to 34 character hash (you guessed it) that is a (hash of) my public key (it's not the public key itself, chiefly for error-correction purposes, one of the few times Bitcoin looks after you). After every time I deal my wallet changes its public key, so nobody can keep track of what I'm doing except for me.
The first input in the life of a Bitcoin is something along the lines of "WalletAthan was legitimately awarded 1 Bitcoin at 4:59pm on Sunday the 12th of April 2015". That's subsequently "hashed" into gobbledygook that looks like 12yxzhUNfQSPWeDrmwKrWKCxQW2Cz36v3B.
Suppose I want to use the 1 Bitcoin to buy something from my brother George. The real-world message then is "WalletAthan was legitimately awarded 1 Bitcoin at 4:59pm on Sunday the 12th of April 2015. WalletAthan gave 1 Bitcoin to WalletGeorge at 5pm on Sunday the 12th of April 2015." But we already know that the first part of the message is represented by the hash 12yxzhUNfQSPWeDrmwKrWKCxQW2Cz36v3B. So I apply my brother George’s public key to a string that looks something like "12yxzhUNfQSPWeDrmwKrWKCxQW2Cz36v3B WalletAthan gave 1 Bitcoin to WalletGeorge at 5pm on Sunday the 12th of April 2015" and the money is now irrevocably his.
This transaction information gets scrambled into a 64 character hash. Something like 975bT0e06f6395403fd37c2bb8003ef1T94b8a9Ucc9e150c2d99klKEB6EHEf.
The 26 to 34 character hash that was my 1 Bitcoin gets re-hashed together with my brother's public key into a new 26 to 34 character hash. Something like GGe3523tn65ybn9a9441hmaR90AFGWR
So we started with 1 Bitcoin (which is a hash), we did a transaction (which is a longer hash) and we ended up with another 1 Bitcoin (which is a hash) Because the new 1 Bitcoin has my brother George’s public key somewhere in the hash, he alone knows what the private key is that can prove he is the rightful owner of the 1 Bitcoin.
Whenever he feels like transferring the money to somebody else (say a bookstore), he must first unlock the 1 Bitcoin with his private key and then apply the bookstore’s public key to the 1 Bitcoin.
This in turn generates 2 new hashes:
1. a 1 Bitcoin hash that has in it somewhere the bookstore’s public key
2. a transaction hash that has in it both George’s unlocking of his public key and the bookstore’s public key (and this solves the mystery of why the transaction hash is longer)
And so on.
The big idea behind the hash is that IT TRAVELS LIGHT. Regardless of the input, the Bitcoin hash is always <= 34 characters. So the hash is evidence of the entire history of a particular Bitcoin without getting longer and longer.
Every dollar turns 7 times per annum in America and some surely turn a lot more often than that. A hundred years down the line the full history of what happened to every Bitcoin would be impossibly long, the Bitcoin would be pages long, but the hash keeps it all at a max of 34 characters at all times. You most obviously cannot travel from 34 characters back in time to every transaction, but the transactions themselves (64 characters apiece) are so compact that every "full node" (see below) can verify every transaction ever done via Bitcoin.
The little miracle that is the hash means Bitcoin is money good that travels light.
Third, comes the peer-to-peer network:
This technology first became popular with the various pirate schemes to share music without storing it in one central place where it could get confiscated. Instead, if you opened an account with one of the various peer-to-peer music sharing networks your computer became a "node" in a web of connected computers. All music stored on your computer was available to all other computers on the network and vice versa. The algorithms are complex and they need to deal with the fact that computers are not connected to the network the whole time, but this technology makes is possible for Bitcoin wallets to become "nodes" in a network, with the explicit purpose of validating each other's transactions using the public key.
The fourth relevant piece of technology is "Proof of Work," a lottery that involves hashing in pairs all 64-character transaction hashes of the past ten minutes and then hashing pairs of the resulting hashes until there's only one hash left (called the Merkle root) and then repeatedly hashing the Merkle root with a specified length hash (the "nonce") until a small enough hash can be generated. How small that hash is (think of it as rolling six dice until they add up to less than ten, for example) is the "difficulty" and the difficulty of the problem is continuously reset to keep the whole "proof of work" down to roughly ten minutes.
The four technologies were combined by the legendary Satoshi Nakamoto (the book dedicates several pages to the sundry theories of who he might be -his true identity is heavily disputed and quite possibly unknown) into the idea of the Blockchain:
Every ten minutes all nodes on the network ask their neighboring nodes and then the ones beyond (a bit like you'd go searching for a song on Gnutella) for as many time-stamped transactions (64 bit hashes) as they can get their hands on. Each node tries to piece together the full information on which wallet sent what Bitcoin to whom. Once you've checked (and endorsed) enough transactions you build them into a "block," and can then start racing everybody to obtain "proof of work," which involves heavy use of your CPU.
The first node to review a block of enough transactions and finish the requisite "proof of work" gets 25 Bitcoin (this it does by inserting an extra "coinbase" transaction whereby it is awarded 25 Bitcoin), publishes its results to the network for verification (incl. that it only awarded itself 25 Bitcoin) and the financial incentives are very strong to stop wasting time on unfinished blocks and try to build on top of the latest winner. Any transactions that weren't included can hope to be included in the next block, but if they are not endorsed soon they get left out, presumably because they amount to double spending. (In the future, and to avoid inflation, the compensation in Bitcoin for calculating the next block will be halved to 25 and will keep being halved every 4 years).
This block is attached to the previous block and all previous ten-minute blocks to form the "blockchain." All history is encapsulated in the header hash of the most recent block in the blockchain.
----------------------------
The beauty of the system is manifold:
1. All the hashes that correspond to transactions are made public. So if two guys say "we made this transaction" and have kept the keys to prove it, everybody on earth can calculate if they are telling the truth.
2. But you can't travel backwards! To catch a drug dealer, basically, you need to lure him into a sting and then the whole world can see you transferred money to him, but if I and my brother George can keep stumm, to find out what we did you need to keep track of the series of George's (forever changing) public keys I used to make the transactions and link them to my series of (forever changing) public keys that people used to give the Bitcoin to me. Good luck to you, basically.
3. Also, good luck establishing if "Wallet Athan" really is mine. It's not called WalletAthan, it's the hash that is equivalent to my public key. Provided I never cash my Bitcoin into dollars (i.e. provided Bitcoin is money good and all I ever wanted to do is make a donation to the Finnish Sea Scouts, which will never be traceable to me) I can keep my identity totally safe.
4. Even cooler than all of the above, and key to the fact that Bitcoin does not need to be "curated" by anybody is that PEOPLE GET PAID TO TURN THE CRANK. It costs time and money (the electricity to run a large farm of computers) to do all the proof of work. Well, for those willing to do the work, there's Bitcoin to be earned! So the world at large has an incentive to verify if I had the Bitcoin in the first place to give to my brother George.
Between these four inventions we have a system that is a very good means of exchange (fraud is impossible) and is also self-perpetuating thanks to the financial incentive to keep updating the blockchain also known as "mining" for bitcoin. Obviously, 0.5 to the twentieth power is also known as one in a million, which at an original 50 Bitcoins per ten minutes in 2009 corresponds to 2.5 fresh Bitcoins per annum after year 100, so Bitcoin needs to appreciate like mad for it to be worth mining for, but that's a story for later.
And with a prevailing wind it can also be a unit of account and a store of value as well. The authors discuss all of that very extensively.
Also very significantly (and this is me talking, not the authors), Bitcoin is a lot like gold:
(i) unlike all bank-generated money, it's nobody's liability
(ii) it does not perish
(iii) while we know it's finite (0.5^n converges to zero) it's still being profitably mined for.
The authors next go into full Michael Lewis mode: a whirlwind tour of everything Bitcoin. They actually admit in the Acknowledgments that he was their role model, but if you ask me they do a much better job than he's done in all his books, except perhaps for his recent masterpiece, "FlashBoys."
Among other things, the tour includes:
* a very good history of the actual Bitcoin protagonists such as Mt Gox
* interviews with the founders of perhaps twenty startups that are doing work along the lines of Bitcoin around the world
* a glimpse of the dinosaurs that are ripe for slaughter when the world has completed its move to cybercurrency (for example the seven companies that handle the money as it moves from my account to yours when I use my Visa card in your store)
* a vista of the massive opportunity to provide transactional services to the world's unbanked, including field trips to the third world to see the work in action
Much like Michael Lewis does with Lewie Ranieri or Jim Clark or Brad Katsuyama, the authors tell the story from the angle of a "Sherpa." Their views are very much informed by the opinions of the current unofficial CTO of Bitcoin, Gavin Andresen. This makes "Cryptocurrency" the official book for Bitcoin, if there could possibly be such a thing for a distributed cryptocurrency.
This does not stop them from dedicating a full chapter to the various weaknesses of Bitcoin.
They explain very well that until the day people can buy everything they need using Bitcoin and also receive their salary in Bitcoin, users of Bitcoin will find themselves in the unenviable situation of an expat who gets paid in Euros but does his spending in Dollars, i.e. hostages to the exchange rate of Bitcoin to the currency in which they get their salary. Similarly for businesses whose employees and suppliers get paid in dollars, to accept payment in Bitcoin would entail a highly volatile pricelist.
Moreover, they detail how the New York Department of Financial Services takes this issue to its natural conclusion and treats Bitcoin like a commodity, recommending that holders of Bitcoin be taxed on their capital gains when they liquidate their Bitcoin to make a purchase in dollars. This is entirely consistent with how they'd handle a taxpayer who keeps his cash in Euros or Sterling, so it's not unfair, but it is a massive impediment to Bitcoin being a good means of exchange, because in essence you'd have to think twice about using Bitcoin ahead of every transaction: "am I about to realise a capital gain here?"
They also worry a lot about the fact that much as Bitcoin might be distributed rather than centrally-controlled, with all the benefits this brings in terms of minimizing risk to the failure of a single central counterparty, when you and I convert our hard-earned dollars into Bitcoin (and vice versa) we have to go through one of a handful of rather primitive exchanges, like the now defunct Mt Gox. So the vulnerability might not be there once you're in Bitcoin, but it's not inconsiderable at the point where you are moving in and out. Oh, and God help you if you misplace your private key. You lose everything.
They also don't shy away from the problem that Bitcoin is in essence a "deflationary currency" in the sense that a central bank cannot manipulate Bitcoin to loosen monetary policy during a recession like the one that occurred in 2008-09 because the increase in Bitcoin is predetermined by formula. In the eyes of many people (they call themselves the "Austrian School") this is a blessing and the Fed should not have prosperity in its mandate, but the authors take the more mainstream view that incompatibility with traditional monetary policy is a minus.
A list of technical problems with Bitcoin, finally, includes that
1. there simply isn't enough Bitcoin to handle all the world's transactions. Bitcoins get exchanged once every ten minutes and the proof of work has to be hard enough to prevent people from mining tons of Bitcoin. Long story short, Bitcoin is good for 6k transactions per 10 minutes and there's a large multiple of that going on worldwide.
2. the electricity people need to use to "mine" the next Bitcoin is not only very expensive but also an environmental issue / threat.
3. if somebody does collect enough computer power he can use it to overwhelm the network and endorse his own version of Blockchain and spend all his Bitcoins twice or more
4. there's already been a case of a documented bug in the Bitcoin code, which allowed Bitcoin to be stolen
Regardless, the authors are convinced that the technology is valid and at some point will evolve to the point that the benefits from adopting it (cutting out the 3% tax on all transactions that middlemen earn, full auditing of transactions for those who wish to submit to it, the benefits to the 100 million unbanked Americans and billions of unbanked people in the third world etc. etc.) will be far too compelling for us not to find a solution.
In my opinion, there are two massive issues that must be dealt with first and a third one that is less tractable:
1. Bitcoin is high-powered money, also known as "outside money." It is not "inside money" of the kind that arises when a bank opens a bank account for you to receive your loan in. In other words, it's M0, rather than M1, M2, M3 etc. So Bitcoin is a means of exchange and a unit of account but it's not fit for purpose when it comes to lending and credit.
2. I left out "store of value" above, because Bitcoin is neither scarce like gold (we can start millions of strands of Bitcoin, but we are limited to the amount of gold there is on planet earth) nor a way to pay tax. The much-maligned paper dollar is money good because Uncle Sam (like Roman emperors 2,000 years before him did in their coin) rakes in 4.5 trillion of dollars per annum in tax and he does not accept payment in pesos. Sadly, neither does he take Bitcoin.
3. Governments do tons of things covertly. Things we want them to do but don't want to know about. Blockchain means audit trail. What are the chances our governments would want to usher in a regime of 100% accountability?
So my bet is the Blockchain technology survives, but a lot of innovation still needs to take place before it is integrated into mainstream banking and lending in particular. And Bitcoin as we currently know it should remain for some time still the preserve of petty criminals, anarchists and techies.
On the other hand, if you are a bit of a technophile, perhaps you may want to look for the fine detail somewhere else.
First comes all the necessary background. You get a thorough introduction on what money is, or rather what it is that that turns something into money, you get an introduction to the biosphere out of which Bitcoin sprung, including a long list of its predecessors, and that part of the book is rounded up by a brief history of the "genesis" of Bitcoin itself.
Next comes an explanation of the Blockchain. Problem #1 with digital money is "how do I know this money is good money" and problem #2 is "how do I know that you are not presenting this good money twice at the same time to make two purchases." The Blockchain is a technology that puts together four pre-existing technologies in an inventive way, to incentivise independent agents to solve these two problems:
1. Public-key encryption
2. The hash
3. The peer-to-peer network of "nodes"
4. Proof of work
Feel free to skip if you know / to set me right if I've understood it wrong -it's not all there in the book and I've had to fill in the blanks myself by spending time on the Internet
--------------------------------
First, public-key encryption:
This is a fantastic new way to write coded messages. The simplest one, RSA, works out as follows:
1. Take two prime numbers and multiply them with one another 3 x 23 = 69
2. Subtract one from each and multiply them again with one another 2 x 22 = 44
3. Add one to the second number 44 + 1 = 45
4. Find two numbers that don't have any common factors and multiply to this third number 9 x 5 = 45
5. You're done. The public key is (9, 69) and the private key is (5, 69). To encrypt do mod(x^9,69) and it turns out that (mod(mod(x^9,69))^5,69) = x
So, for example, suppose I want number 20 to be my message
20^9= 512000000000 and mod(512000000000,69) = 5. So the coded way to say "20" is "5"
But 5^5 = 3125 and mod (3125,69) = 20, so, lo and behold, "5" is decoded as "20"
The beauty of this code is that if I pick two very large prime numbers a and b, NOBODY has the computing power to factorize a x b. And if they are very big, then (a -1) x (b - 1) can have a very wide choice of co-prime numbers c and d such that c x d = (a - 1) x (b - 1) + 1.
Ergo, if I give away (d, a x b) nobody has the computing power to figure out what c is. So I can put out there (d, a x b) as a code for anybody in the world to send me a message. They can post it on the Internet. And only I can break the code. Even better, even if somebody out there rats me out and says: "here's how to encode messages for Athan to read" that still does not help the CIA read my messages.
More prosaically, you can send me Bitcoin and you can sign it with my public key. Everybody can verify that it is my Bitcoin, because my Bitcoin addresss is (or is derivable from) my public key. But only I can turn around and assign the Bitcoin to somebody else, because only I have the private key that is necessary to do so. Neat, huh?
It all kind of breaks down if somebody one day writes a computer that can calculate hyper-fast and goes through all the numbers in the world, but the fastest computers on earth would currently take longer to break a good-enough code than mankind has existed! (It helps that raising to a power is not cake)
N.B. The above is merely an example; Bitcoin does not use RSA, it uses elliptic curves-based encryption, which (among other advantages) obviates the need to change private key every time you've changed your public key.
Second, the hash:
The hash is a 26 to 34-character string that is the output of a function that generates a fixed-length alphanumeric representation of the data it received. To build it I need input (example 1: the sentence "to be or not to be"; example 2: the complete works of William Shakespeare) and I need a "hashing" algorithm. The big deal here is that "hashing" always brings the same input to the same short string of characters.
My wallet is the place where I keep my Bitcoin. At all points in time my wallet has a public key and a private key. The rest of the planet knows my wallet by the 26 to 34 character hash (you guessed it) that is a (hash of) my public key (it's not the public key itself, chiefly for error-correction purposes, one of the few times Bitcoin looks after you). After every time I deal my wallet changes its public key, so nobody can keep track of what I'm doing except for me.
The first input in the life of a Bitcoin is something along the lines of "WalletAthan was legitimately awarded 1 Bitcoin at 4:59pm on Sunday the 12th of April 2015". That's subsequently "hashed" into gobbledygook that looks like 12yxzhUNfQSPWeDrmwKrWKCxQW2Cz36v3B.
Suppose I want to use the 1 Bitcoin to buy something from my brother George. The real-world message then is "WalletAthan was legitimately awarded 1 Bitcoin at 4:59pm on Sunday the 12th of April 2015. WalletAthan gave 1 Bitcoin to WalletGeorge at 5pm on Sunday the 12th of April 2015." But we already know that the first part of the message is represented by the hash 12yxzhUNfQSPWeDrmwKrWKCxQW2Cz36v3B. So I apply my brother George’s public key to a string that looks something like "12yxzhUNfQSPWeDrmwKrWKCxQW2Cz36v3B WalletAthan gave 1 Bitcoin to WalletGeorge at 5pm on Sunday the 12th of April 2015" and the money is now irrevocably his.
This transaction information gets scrambled into a 64 character hash. Something like 975bT0e06f6395403fd37c2bb8003ef1T94b8a9Ucc9e150c2d99klKEB6EHEf.
The 26 to 34 character hash that was my 1 Bitcoin gets re-hashed together with my brother's public key into a new 26 to 34 character hash. Something like GGe3523tn65ybn9a9441hmaR90AFGWR
So we started with 1 Bitcoin (which is a hash), we did a transaction (which is a longer hash) and we ended up with another 1 Bitcoin (which is a hash) Because the new 1 Bitcoin has my brother George’s public key somewhere in the hash, he alone knows what the private key is that can prove he is the rightful owner of the 1 Bitcoin.
Whenever he feels like transferring the money to somebody else (say a bookstore), he must first unlock the 1 Bitcoin with his private key and then apply the bookstore’s public key to the 1 Bitcoin.
This in turn generates 2 new hashes:
1. a 1 Bitcoin hash that has in it somewhere the bookstore’s public key
2. a transaction hash that has in it both George’s unlocking of his public key and the bookstore’s public key (and this solves the mystery of why the transaction hash is longer)
And so on.
The big idea behind the hash is that IT TRAVELS LIGHT. Regardless of the input, the Bitcoin hash is always <= 34 characters. So the hash is evidence of the entire history of a particular Bitcoin without getting longer and longer.
Every dollar turns 7 times per annum in America and some surely turn a lot more often than that. A hundred years down the line the full history of what happened to every Bitcoin would be impossibly long, the Bitcoin would be pages long, but the hash keeps it all at a max of 34 characters at all times. You most obviously cannot travel from 34 characters back in time to every transaction, but the transactions themselves (64 characters apiece) are so compact that every "full node" (see below) can verify every transaction ever done via Bitcoin.
The little miracle that is the hash means Bitcoin is money good that travels light.
Third, comes the peer-to-peer network:
This technology first became popular with the various pirate schemes to share music without storing it in one central place where it could get confiscated. Instead, if you opened an account with one of the various peer-to-peer music sharing networks your computer became a "node" in a web of connected computers. All music stored on your computer was available to all other computers on the network and vice versa. The algorithms are complex and they need to deal with the fact that computers are not connected to the network the whole time, but this technology makes is possible for Bitcoin wallets to become "nodes" in a network, with the explicit purpose of validating each other's transactions using the public key.
The fourth relevant piece of technology is "Proof of Work," a lottery that involves hashing in pairs all 64-character transaction hashes of the past ten minutes and then hashing pairs of the resulting hashes until there's only one hash left (called the Merkle root) and then repeatedly hashing the Merkle root with a specified length hash (the "nonce") until a small enough hash can be generated. How small that hash is (think of it as rolling six dice until they add up to less than ten, for example) is the "difficulty" and the difficulty of the problem is continuously reset to keep the whole "proof of work" down to roughly ten minutes.
The four technologies were combined by the legendary Satoshi Nakamoto (the book dedicates several pages to the sundry theories of who he might be -his true identity is heavily disputed and quite possibly unknown) into the idea of the Blockchain:
Every ten minutes all nodes on the network ask their neighboring nodes and then the ones beyond (a bit like you'd go searching for a song on Gnutella) for as many time-stamped transactions (64 bit hashes) as they can get their hands on. Each node tries to piece together the full information on which wallet sent what Bitcoin to whom. Once you've checked (and endorsed) enough transactions you build them into a "block," and can then start racing everybody to obtain "proof of work," which involves heavy use of your CPU.
The first node to review a block of enough transactions and finish the requisite "proof of work" gets 25 Bitcoin (this it does by inserting an extra "coinbase" transaction whereby it is awarded 25 Bitcoin), publishes its results to the network for verification (incl. that it only awarded itself 25 Bitcoin) and the financial incentives are very strong to stop wasting time on unfinished blocks and try to build on top of the latest winner. Any transactions that weren't included can hope to be included in the next block, but if they are not endorsed soon they get left out, presumably because they amount to double spending. (In the future, and to avoid inflation, the compensation in Bitcoin for calculating the next block will be halved to 25 and will keep being halved every 4 years).
This block is attached to the previous block and all previous ten-minute blocks to form the "blockchain." All history is encapsulated in the header hash of the most recent block in the blockchain.
----------------------------
The beauty of the system is manifold:
1. All the hashes that correspond to transactions are made public. So if two guys say "we made this transaction" and have kept the keys to prove it, everybody on earth can calculate if they are telling the truth.
2. But you can't travel backwards! To catch a drug dealer, basically, you need to lure him into a sting and then the whole world can see you transferred money to him, but if I and my brother George can keep stumm, to find out what we did you need to keep track of the series of George's (forever changing) public keys I used to make the transactions and link them to my series of (forever changing) public keys that people used to give the Bitcoin to me. Good luck to you, basically.
3. Also, good luck establishing if "Wallet Athan" really is mine. It's not called WalletAthan, it's the hash that is equivalent to my public key. Provided I never cash my Bitcoin into dollars (i.e. provided Bitcoin is money good and all I ever wanted to do is make a donation to the Finnish Sea Scouts, which will never be traceable to me) I can keep my identity totally safe.
4. Even cooler than all of the above, and key to the fact that Bitcoin does not need to be "curated" by anybody is that PEOPLE GET PAID TO TURN THE CRANK. It costs time and money (the electricity to run a large farm of computers) to do all the proof of work. Well, for those willing to do the work, there's Bitcoin to be earned! So the world at large has an incentive to verify if I had the Bitcoin in the first place to give to my brother George.
Between these four inventions we have a system that is a very good means of exchange (fraud is impossible) and is also self-perpetuating thanks to the financial incentive to keep updating the blockchain also known as "mining" for bitcoin. Obviously, 0.5 to the twentieth power is also known as one in a million, which at an original 50 Bitcoins per ten minutes in 2009 corresponds to 2.5 fresh Bitcoins per annum after year 100, so Bitcoin needs to appreciate like mad for it to be worth mining for, but that's a story for later.
And with a prevailing wind it can also be a unit of account and a store of value as well. The authors discuss all of that very extensively.
Also very significantly (and this is me talking, not the authors), Bitcoin is a lot like gold:
(i) unlike all bank-generated money, it's nobody's liability
(ii) it does not perish
(iii) while we know it's finite (0.5^n converges to zero) it's still being profitably mined for.
The authors next go into full Michael Lewis mode: a whirlwind tour of everything Bitcoin. They actually admit in the Acknowledgments that he was their role model, but if you ask me they do a much better job than he's done in all his books, except perhaps for his recent masterpiece, "FlashBoys."
Among other things, the tour includes:
* a very good history of the actual Bitcoin protagonists such as Mt Gox
* interviews with the founders of perhaps twenty startups that are doing work along the lines of Bitcoin around the world
* a glimpse of the dinosaurs that are ripe for slaughter when the world has completed its move to cybercurrency (for example the seven companies that handle the money as it moves from my account to yours when I use my Visa card in your store)
* a vista of the massive opportunity to provide transactional services to the world's unbanked, including field trips to the third world to see the work in action
Much like Michael Lewis does with Lewie Ranieri or Jim Clark or Brad Katsuyama, the authors tell the story from the angle of a "Sherpa." Their views are very much informed by the opinions of the current unofficial CTO of Bitcoin, Gavin Andresen. This makes "Cryptocurrency" the official book for Bitcoin, if there could possibly be such a thing for a distributed cryptocurrency.
This does not stop them from dedicating a full chapter to the various weaknesses of Bitcoin.
They explain very well that until the day people can buy everything they need using Bitcoin and also receive their salary in Bitcoin, users of Bitcoin will find themselves in the unenviable situation of an expat who gets paid in Euros but does his spending in Dollars, i.e. hostages to the exchange rate of Bitcoin to the currency in which they get their salary. Similarly for businesses whose employees and suppliers get paid in dollars, to accept payment in Bitcoin would entail a highly volatile pricelist.
Moreover, they detail how the New York Department of Financial Services takes this issue to its natural conclusion and treats Bitcoin like a commodity, recommending that holders of Bitcoin be taxed on their capital gains when they liquidate their Bitcoin to make a purchase in dollars. This is entirely consistent with how they'd handle a taxpayer who keeps his cash in Euros or Sterling, so it's not unfair, but it is a massive impediment to Bitcoin being a good means of exchange, because in essence you'd have to think twice about using Bitcoin ahead of every transaction: "am I about to realise a capital gain here?"
They also worry a lot about the fact that much as Bitcoin might be distributed rather than centrally-controlled, with all the benefits this brings in terms of minimizing risk to the failure of a single central counterparty, when you and I convert our hard-earned dollars into Bitcoin (and vice versa) we have to go through one of a handful of rather primitive exchanges, like the now defunct Mt Gox. So the vulnerability might not be there once you're in Bitcoin, but it's not inconsiderable at the point where you are moving in and out. Oh, and God help you if you misplace your private key. You lose everything.
They also don't shy away from the problem that Bitcoin is in essence a "deflationary currency" in the sense that a central bank cannot manipulate Bitcoin to loosen monetary policy during a recession like the one that occurred in 2008-09 because the increase in Bitcoin is predetermined by formula. In the eyes of many people (they call themselves the "Austrian School") this is a blessing and the Fed should not have prosperity in its mandate, but the authors take the more mainstream view that incompatibility with traditional monetary policy is a minus.
A list of technical problems with Bitcoin, finally, includes that
1. there simply isn't enough Bitcoin to handle all the world's transactions. Bitcoins get exchanged once every ten minutes and the proof of work has to be hard enough to prevent people from mining tons of Bitcoin. Long story short, Bitcoin is good for 6k transactions per 10 minutes and there's a large multiple of that going on worldwide.
2. the electricity people need to use to "mine" the next Bitcoin is not only very expensive but also an environmental issue / threat.
3. if somebody does collect enough computer power he can use it to overwhelm the network and endorse his own version of Blockchain and spend all his Bitcoins twice or more
4. there's already been a case of a documented bug in the Bitcoin code, which allowed Bitcoin to be stolen
Regardless, the authors are convinced that the technology is valid and at some point will evolve to the point that the benefits from adopting it (cutting out the 3% tax on all transactions that middlemen earn, full auditing of transactions for those who wish to submit to it, the benefits to the 100 million unbanked Americans and billions of unbanked people in the third world etc. etc.) will be far too compelling for us not to find a solution.
In my opinion, there are two massive issues that must be dealt with first and a third one that is less tractable:
1. Bitcoin is high-powered money, also known as "outside money." It is not "inside money" of the kind that arises when a bank opens a bank account for you to receive your loan in. In other words, it's M0, rather than M1, M2, M3 etc. So Bitcoin is a means of exchange and a unit of account but it's not fit for purpose when it comes to lending and credit.
2. I left out "store of value" above, because Bitcoin is neither scarce like gold (we can start millions of strands of Bitcoin, but we are limited to the amount of gold there is on planet earth) nor a way to pay tax. The much-maligned paper dollar is money good because Uncle Sam (like Roman emperors 2,000 years before him did in their coin) rakes in 4.5 trillion of dollars per annum in tax and he does not accept payment in pesos. Sadly, neither does he take Bitcoin.
3. Governments do tons of things covertly. Things we want them to do but don't want to know about. Blockchain means audit trail. What are the chances our governments would want to usher in a regime of 100% accountability?
So my bet is the Blockchain technology survives, but a lot of innovation still needs to take place before it is integrated into mainstream banking and lending in particular. And Bitcoin as we currently know it should remain for some time still the preserve of petty criminals, anarchists and techies.
February 11, 2021
This is the journalistic account of Bitcoin and blockchain technology that I had been waiting to read, providing a remarkably accessible account of Bitcoin's origins, as well as basic technical descriptions of how the protocol functions. One way to think of Bitcoin is as a giant public ledger that is maintained by everyone collectively in a networked manner, rather than a ledger kept by a central authority such as a bank. Bitcoins are "mined" through the process of doing the bookkeeping on the millions of transactions using the currency. Every ten minutes or so the Bitcoin protocol completes another new batch of transactions, which are collectively verified by all the miners around the world. This releases a new set of coins to the winning mining node, which in the course of this bookkeeping has effectively solved a very difficult math problem, signs the completed transactions as accurately verified, and proceeds to the next batch. There will only ever be a total of 21 million Bitcoins once mining completes around the year 2140. This introduces a level of scarcity and makes it a deflationary currency.
In terms of processing Bitcoin transactions, the act of announcing the transaction is effectively the same as carrying it out. When you send money to someone today you must do so through a bank. Using the blockchain, or the network of cooperating computers that verify and maintain the ledger, you can send money directly by simply adding another entry to the public blockchain ledger and make banks irrelevant. There is no question of anyone not being good for their money because the ledger is completely transparent and always accurate. Blockchain is the network underpinning of Bitcoin, but the technology also allows the possibility of developing other functions aside from internet currency, including the creation of trustless contracts that are automatically verified and enforced by the chain. While we often focus on the criminals and highwaymen who usually start off any new industry, as it develops Bitcoin and blockchain technology actually offer a lot of hope to the 2.5bn people around the world who lack access to the stability of the banking system and have no way of building savings or accessing solid legal infrastructure for property rights and contracts. For millions of guest works who are extorted by middlemen with fees for remitting their money internationally, Bitcoin potentially frees them to transact instantaneously, at minimal cost, and with total security. All it takes is a Nokia phone or better, which today almost everyone in the world has.
Central banks and institutional banks are trying to respond to the emergence of Bitcoin by getting in on the game themselves by taking large positions, or building their own platforms on the blockchain. However it would seem that the advent of this protocol, which is controlled by no one and is essentially invincible due to its massively networked design, means that these institutions are inevitably going to be robbed of the central place they have in society today. Once they lose the ability to create and control the money supply, they will be reduced from central power brokers to merely one set of rich players amongst many. Fiat currencies will still exist, but will be merely one of many currencies that people can use. One could transact in Bitcoin or U.S. dollars, or any number of other new currencies, and they will be all be on some sort of levelled playing field rather than the dollar reigning supreme as today. Its entirely likely in fact that Bitcoin could be the world's reserve currency and could dethrone the dollar from the esteemed place it holds today.
Money is an important part of the human story. It never has an inherent value per se, but rather corresponds to the value people to decide to attribute to it. Once the gold standard in the U.S. was broken, the power of the dollar was effectively backed by nothing more than the reputation and might of the empire. The periods in which new coins have been minted have often ushered in a new age. When a monarch took power, for instance coins would be issued bearing their name. Today we live in the internet and network age, and it makes total sense to me that this unprecedented decentralization of power would produce a new currency. The incredible origins of Bitcoin, designed by the pseudonymous Satoshi Nakomoto in the wake of the 2008 financial crisis, and the elegant genius of its design suggest that its power is only going to grow and grow in the long-term.
This book was written six years ago, and it seems like it is now beginning to lift off. The world of digital currencies and blockchain is going to be wildly different from the one we inhabit today and there will be winners and losers. Libertarian-minded people or those seeking to be unrooted from any one place will love it, as will those at the bottom financially empowered for the first time, while those who built their lives on the assumptions of the old centralized system might be in for a painful adjustment. One can only hope that on balance things improve, especially for the bottom two billion who often have cellphones, but, due to their physical and cultural distance from the big banks, have had no means of building wealth or plugging their economic activity into the global system that nonetheless impacts them so much. That alienation is going to be ending soon, I suspect.
In terms of processing Bitcoin transactions, the act of announcing the transaction is effectively the same as carrying it out. When you send money to someone today you must do so through a bank. Using the blockchain, or the network of cooperating computers that verify and maintain the ledger, you can send money directly by simply adding another entry to the public blockchain ledger and make banks irrelevant. There is no question of anyone not being good for their money because the ledger is completely transparent and always accurate. Blockchain is the network underpinning of Bitcoin, but the technology also allows the possibility of developing other functions aside from internet currency, including the creation of trustless contracts that are automatically verified and enforced by the chain. While we often focus on the criminals and highwaymen who usually start off any new industry, as it develops Bitcoin and blockchain technology actually offer a lot of hope to the 2.5bn people around the world who lack access to the stability of the banking system and have no way of building savings or accessing solid legal infrastructure for property rights and contracts. For millions of guest works who are extorted by middlemen with fees for remitting their money internationally, Bitcoin potentially frees them to transact instantaneously, at minimal cost, and with total security. All it takes is a Nokia phone or better, which today almost everyone in the world has.
Central banks and institutional banks are trying to respond to the emergence of Bitcoin by getting in on the game themselves by taking large positions, or building their own platforms on the blockchain. However it would seem that the advent of this protocol, which is controlled by no one and is essentially invincible due to its massively networked design, means that these institutions are inevitably going to be robbed of the central place they have in society today. Once they lose the ability to create and control the money supply, they will be reduced from central power brokers to merely one set of rich players amongst many. Fiat currencies will still exist, but will be merely one of many currencies that people can use. One could transact in Bitcoin or U.S. dollars, or any number of other new currencies, and they will be all be on some sort of levelled playing field rather than the dollar reigning supreme as today. Its entirely likely in fact that Bitcoin could be the world's reserve currency and could dethrone the dollar from the esteemed place it holds today.
Money is an important part of the human story. It never has an inherent value per se, but rather corresponds to the value people to decide to attribute to it. Once the gold standard in the U.S. was broken, the power of the dollar was effectively backed by nothing more than the reputation and might of the empire. The periods in which new coins have been minted have often ushered in a new age. When a monarch took power, for instance coins would be issued bearing their name. Today we live in the internet and network age, and it makes total sense to me that this unprecedented decentralization of power would produce a new currency. The incredible origins of Bitcoin, designed by the pseudonymous Satoshi Nakomoto in the wake of the 2008 financial crisis, and the elegant genius of its design suggest that its power is only going to grow and grow in the long-term.
This book was written six years ago, and it seems like it is now beginning to lift off. The world of digital currencies and blockchain is going to be wildly different from the one we inhabit today and there will be winners and losers. Libertarian-minded people or those seeking to be unrooted from any one place will love it, as will those at the bottom financially empowered for the first time, while those who built their lives on the assumptions of the old centralized system might be in for a painful adjustment. One can only hope that on balance things improve, especially for the bottom two billion who often have cellphones, but, due to their physical and cultural distance from the big banks, have had no means of building wealth or plugging their economic activity into the global system that nonetheless impacts them so much. That alienation is going to be ending soon, I suspect.
August 16, 2017
Ótimo complemento ao Digital Gold, mais atualizado e mais abrangente sobre o impacto econômico que criptomoedas podem ter. Paul Vigna e Michael J. Casey são dois jornalistas de economia que compraram a ideia das mudanças que criptomoedas trazem. O livro passa bem mais rapidamente pela história da bitcoin, inclusive detalha menos a blockchain do que Digital Gold.
Em compensação, ele cobre mais das mudanças que as criptomoedas estão provocando em vários países e vários setores da economia e da informação. Passa pelo desenvolvimento das altcoins, por várias propostas de uso da blockchain e até pelo cenário de programação de criptomoedas em San Francisco e as primeiras grandes startups que estão surgindo.
Ao mesmo tempo, eles mantém uma postura mais cética e menos ideológica sobre as chances dessas novas ideias serem adotadas, dentro do espírito de que as pessoas não querem as melhores ideias, só querem as que funcionam bem o suficiente sem dar muito trabalho. Reconhecem que até mais do que o sistema financeiro, uma ameaça enorme à adoção de criptomoedas como moedas de troca de fato concorre com iniciativas como Apple Pay (na época do livro) e transferências similares por Apps, como já acontece na China.
Em compensação, ele cobre mais das mudanças que as criptomoedas estão provocando em vários países e vários setores da economia e da informação. Passa pelo desenvolvimento das altcoins, por várias propostas de uso da blockchain e até pelo cenário de programação de criptomoedas em San Francisco e as primeiras grandes startups que estão surgindo.
Ao mesmo tempo, eles mantém uma postura mais cética e menos ideológica sobre as chances dessas novas ideias serem adotadas, dentro do espírito de que as pessoas não querem as melhores ideias, só querem as que funcionam bem o suficiente sem dar muito trabalho. Reconhecem que até mais do que o sistema financeiro, uma ameaça enorme à adoção de criptomoedas como moedas de troca de fato concorre com iniciativas como Apple Pay (na época do livro) e transferências similares por Apps, como já acontece na China.
August 18, 2017
"The Age of Cryptocurrency" by Paul Vigna and Michael J. Casey is a solid, non-technical, introduction to Bitcoin and block chain technology. This book covers the time period from the 1990s up through 2014.
I recommend this book to anyone interested in reading a non-technical introduction to Bitcoin and block chain up through 2014.
Rating: 4 out of 5 stars
Notes:
Audiobook:
Narrated by: Sean Pratt
Length: 14 hours and 17 minutes
Unabridged Audiobook
Release Date: 2015-01-29
Publisher: Gildan Media, LLC
I recommend this book to anyone interested in reading a non-technical introduction to Bitcoin and block chain up through 2014.
Rating: 4 out of 5 stars
Notes:
Audiobook:
Narrated by: Sean Pratt
Length: 14 hours and 17 minutes
Unabridged Audiobook
Release Date: 2015-01-29
Publisher: Gildan Media, LLC
October 15, 2017
At 2 years old, this is already feeling dated, but it gives a detailed look at the start of the blockchain 'revolution' in progress. The authors' backgrounds in finance/economy give them a particular slant but it doesn't keep them from diving into the cultural and technological effects of blockchain technology. As expected, there are some interesting guesstimates as to where the new tech might take us, but given what blockchain can already do out of the box, so to speak, is pretty impressive.
Required reading for a baseline in blockchain, but you'll want to add some newer sources to your reading stack, probably including some blogs/news feeds to keep up. This tech is so new the changes are coming quick and heavy.
Required reading for a baseline in blockchain, but you'll want to add some newer sources to your reading stack, probably including some blogs/news feeds to keep up. This tech is so new the changes are coming quick and heavy.
April 1, 2018
2.5 stars
Some of the content in the book is interesting but overall, I actually found it a bit boring. I was also surprised by the bias of the authors. I don't mean that as negatively as it sounds but my understanding is that this book is written by journalists so I was expecting something a bit more objective but the tone of the book is by authors who seem pretty all in on bitcoin and they sometimes criticize those who are still skeptical. In general, I found the book selective in breadth and offered little in depth. There are times when I wished it was more technical, times when I wished it was more philosophical, and times when I wished it was more sociological. I also found it to be a bit rambling and repeating at times. All that aside, I guess it's a decent primer. It will arm you with terminology and concepts so that you can Google what the authors don't fully go into.
There are a couple of topics I felt the authors could have done more work on but, of course, that's their call.
- Bitcoin/blockchain's central assumption is that decentralization is good. But the question is never asked or investigated if society wants that. The banking implosion of 2008 shows that people don't care for the big banks but this doesn't mean that people inherently distrust overall banking operations. They are potentially likely to lay blame on bad actors and seek additional regulations. Would people prefer to replace the entire infrastructure with a faceless system (blockchain)? Perhaps, but this isn't actually vetted. It seems impossible to guess the viability of the currency and tech without figuring this out. My hypothesis is that people would prefer to put their trust into a face/personality/brand then abdicate to an algorithm, even if provable that the latter is more effective.
- I'd be interested in understanding examples of people trusting a system or process not owned by some central entity. Is there precedence for something like blockchain to be embraced?
- Though the book addresses it, I am unconvinced that miners would not converge into a singular (or monopolistic) entity to control hashing. The system rewards self-interest and profit (or reward) maximization tends to coincide with market dominance. That it hasn't happened yet seems to be born more out of human inclination, which is specifically what blockchain, at scale, wants eliminated.
- The authors describe what's needed for bitcoin to gain acceptance but they leave an important factor out: an underlying asset to accompany the new currency. The US dollar didn't just come out of nowhere. It became a global standard of currency because it became the underlying trading currency for oil (essentially America's global colonization). Prior currencies from England back to the Roman empire accompanied those country's/empire's military and colonial expansions. What would accompany bitcoin's growth? Expansion into the virtual world? Scaled use of existing currencies in the online world may have already kneecapped bitcoin.
Some of the content in the book is interesting but overall, I actually found it a bit boring. I was also surprised by the bias of the authors. I don't mean that as negatively as it sounds but my understanding is that this book is written by journalists so I was expecting something a bit more objective but the tone of the book is by authors who seem pretty all in on bitcoin and they sometimes criticize those who are still skeptical. In general, I found the book selective in breadth and offered little in depth. There are times when I wished it was more technical, times when I wished it was more philosophical, and times when I wished it was more sociological. I also found it to be a bit rambling and repeating at times. All that aside, I guess it's a decent primer. It will arm you with terminology and concepts so that you can Google what the authors don't fully go into.
There are a couple of topics I felt the authors could have done more work on but, of course, that's their call.
- Bitcoin/blockchain's central assumption is that decentralization is good. But the question is never asked or investigated if society wants that. The banking implosion of 2008 shows that people don't care for the big banks but this doesn't mean that people inherently distrust overall banking operations. They are potentially likely to lay blame on bad actors and seek additional regulations. Would people prefer to replace the entire infrastructure with a faceless system (blockchain)? Perhaps, but this isn't actually vetted. It seems impossible to guess the viability of the currency and tech without figuring this out. My hypothesis is that people would prefer to put their trust into a face/personality/brand then abdicate to an algorithm, even if provable that the latter is more effective.
- I'd be interested in understanding examples of people trusting a system or process not owned by some central entity. Is there precedence for something like blockchain to be embraced?
- Though the book addresses it, I am unconvinced that miners would not converge into a singular (or monopolistic) entity to control hashing. The system rewards self-interest and profit (or reward) maximization tends to coincide with market dominance. That it hasn't happened yet seems to be born more out of human inclination, which is specifically what blockchain, at scale, wants eliminated.
- The authors describe what's needed for bitcoin to gain acceptance but they leave an important factor out: an underlying asset to accompany the new currency. The US dollar didn't just come out of nowhere. It became a global standard of currency because it became the underlying trading currency for oil (essentially America's global colonization). Prior currencies from England back to the Roman empire accompanied those country's/empire's military and colonial expansions. What would accompany bitcoin's growth? Expansion into the virtual world? Scaled use of existing currencies in the online world may have already kneecapped bitcoin.
August 18, 2016
Money supposedly makes the world go round. It doesn’t; that’s physics; but it is the lifeblood of business and the system that controls it, governments, banks, brokers and the other middlemen have made and lost fortunes with it and with that control comes power. Cryptocurrencies might be something that you have heard of, but like most people you are probably unaware how this new form of money is aiming to revolutionise the concept of money.
Bitcoin is probably the best known of these new cryptocurrencies. They are beginning to offer a genuine alternative to regular currencies, allowing people without access to credit and banks a way into global finance. This new money is a peer-to-peer type verified by technologies such as the blockchain and encryption allowing the bypassing of regular money channels. It is not subject to regular laws either, it was extensively used on the Silk Road website for illegal transactions and has gained some notoriety, however it is democratic and anyone can mine the coins to spend how they choose.
It is an interesting book about a new form of cash and whilst the authors do their best to explain it in simple and straightforward terms, it is at time very technical and complex. It is worth reading though, especially if you have an interest in technology or finance; but be prepared to be baffled at times.
Bitcoin is probably the best known of these new cryptocurrencies. They are beginning to offer a genuine alternative to regular currencies, allowing people without access to credit and banks a way into global finance. This new money is a peer-to-peer type verified by technologies such as the blockchain and encryption allowing the bypassing of regular money channels. It is not subject to regular laws either, it was extensively used on the Silk Road website for illegal transactions and has gained some notoriety, however it is democratic and anyone can mine the coins to spend how they choose.
It is an interesting book about a new form of cash and whilst the authors do their best to explain it in simple and straightforward terms, it is at time very technical and complex. It is worth reading though, especially if you have an interest in technology or finance; but be prepared to be baffled at times.
December 11, 2018
Debate is still hot whether bitcoin (and cryptocurrencies in general) is a money, currency, commodity? Does it have a storage value? Is it a ponzi scheme, bubble, fraud or what?
This book is a good start from the "genesis" to the efforts to attach them to conventional economy, for those who have no idea about what cryptocurrencies are. It is printed way before the crazy bull market lifting bitcoin prices as high as $20.000 and then the collapse of all cryptocurrency prices plummeting to the losses as much as 95%.
Are cryptocurrencies the paving stones leading us to an anarcho-libertarian society, or just another investing frenzy, read this book and you decide.
This book is a good start from the "genesis" to the efforts to attach them to conventional economy, for those who have no idea about what cryptocurrencies are. It is printed way before the crazy bull market lifting bitcoin prices as high as $20.000 and then the collapse of all cryptocurrency prices plummeting to the losses as much as 95%.
Are cryptocurrencies the paving stones leading us to an anarcho-libertarian society, or just another investing frenzy, read this book and you decide.
February 7, 2016
Great summary of cryptocurrencies (Bitcoin, etc.), including background (cypherpunks), current players, drivers of success/failure, and future scenarios. Non-technical, but well informed.
Personally not terribly sold on Bitcoin itself, but some kind of cryptocurrency (ideally, an anonymous one, like Zcash or blinded tokens) should succeed, at least for verticals.
(Audible audiobook)
Personally not terribly sold on Bitcoin itself, but some kind of cryptocurrency (ideally, an anonymous one, like Zcash or blinded tokens) should succeed, at least for verticals.
(Audible audiobook)
June 5, 2016
Paul Vigna y Michael Casey hacen un gran trabajo al presentar la historia del surgimiento de las monedas digital tales como el bitcoin. El libro es fácil lectura y presenta a través de anécdotas y de historias coloridas las motivaciones tras la creación de este tipo monedas, los retos técnicos y políticos que han encontrado a su paso y su desarrollo paralelo al del sistema internacional de pagos.
El libro ofrece una introducción no técnica al funcionamiento del bitcoin sus principales retos, evaluando pros y contras de la adopción masiva de una moneda con estas características. Los autores buscan generar una discusión seria sobre el tema y alejarla del sensacionalismo con el que se maneja en los medios tradicionales.
El libro es algo laxo en detalles teóricos sobre la política monetaria y las funciones e historia del dinero en la economía, aun así es un libro entretenido y que aporta mucha información para los no conocedores de todo lo que esta detrás del surgimiento de la monedas digitales.
El libro ofrece una introducción no técnica al funcionamiento del bitcoin sus principales retos, evaluando pros y contras de la adopción masiva de una moneda con estas características. Los autores buscan generar una discusión seria sobre el tema y alejarla del sensacionalismo con el que se maneja en los medios tradicionales.
El libro es algo laxo en detalles teóricos sobre la política monetaria y las funciones e historia del dinero en la economía, aun así es un libro entretenido y que aporta mucha información para los no conocedores de todo lo que esta detrás del surgimiento de la monedas digitales.
May 10, 2021
This book is about Bitcoin, other cryptocurrencies and the blockchain technology, but the focus is also on the community that build it, cherish it, believe in it. Through different real life stories of the major actors of the crypto world, it allows us to understand the mindset and motivation behind those creators and contributors as well as the potential behind it.
It talks about bitcoin the currency and Bitcoin the technology along with the creation of the Ethereum platform, Ripple, Stellar and Tether. The content is very accessible for non technophiles, and provide the necessary information for those unfamiliar with the subject. I do recommend this book is you want to dive into the topic without foreknowledge.
Some substantial points are highlighted regarding the advantages and opportunities that the blockchain technology has to offer. To say a few:
We have reached a point where government money and banks gives no advantages any more. We often don’t even realize the hidden cost and privacy issue of credit cards. Furthermore, we are witnessing the appearance of negative interest rate and inflation, while most cryptocurrencies present themselves with a limited supply, are global and more scalable than fiat money. Additionally, It isn’t unusual to see saving possibilities on crypto exchange platforms with an annual return from 0.40% to 32%!
We often forget that we can choose to move to something more in adequacy with our time and desire to have control over our finances and privacy.
Blockchain technology cancels the need of a third party and by doing so, give full control to people over their finances as banks no longer have a role to play. It is also a huge opportunity for the unbanked people mostly in developed countries as they have the possibility to stock and exchange their money as they wish. Remittance business could be impacted severely by the adoption of cryptocurrencies as of course they will no longer be needed as well. Sounds like a real democratization of finance.
Despite its volatility (for now) and the fact that it can only handle 7 transactions per second, Bitcoin can be used as a store of value in the near future, while the other crypto/stablecoins as a mean of exchange.
Of course there is still work to do with regulation and compliance, but things are going faster than ever, and it’s definitely time for finance to got an update. There really isn’t a day without the announcement of a new project built on blockchain with a huge potential. I am really looking forward to seeing where it will bring us.
It talks about bitcoin the currency and Bitcoin the technology along with the creation of the Ethereum platform, Ripple, Stellar and Tether. The content is very accessible for non technophiles, and provide the necessary information for those unfamiliar with the subject. I do recommend this book is you want to dive into the topic without foreknowledge.
Some substantial points are highlighted regarding the advantages and opportunities that the blockchain technology has to offer. To say a few:
We have reached a point where government money and banks gives no advantages any more. We often don’t even realize the hidden cost and privacy issue of credit cards. Furthermore, we are witnessing the appearance of negative interest rate and inflation, while most cryptocurrencies present themselves with a limited supply, are global and more scalable than fiat money. Additionally, It isn’t unusual to see saving possibilities on crypto exchange platforms with an annual return from 0.40% to 32%!
We often forget that we can choose to move to something more in adequacy with our time and desire to have control over our finances and privacy.
Blockchain technology cancels the need of a third party and by doing so, give full control to people over their finances as banks no longer have a role to play. It is also a huge opportunity for the unbanked people mostly in developed countries as they have the possibility to stock and exchange their money as they wish. Remittance business could be impacted severely by the adoption of cryptocurrencies as of course they will no longer be needed as well. Sounds like a real democratization of finance.
Despite its volatility (for now) and the fact that it can only handle 7 transactions per second, Bitcoin can be used as a store of value in the near future, while the other crypto/stablecoins as a mean of exchange.
Of course there is still work to do with regulation and compliance, but things are going faster than ever, and it’s definitely time for finance to got an update. There really isn’t a day without the announcement of a new project built on blockchain with a huge potential. I am really looking forward to seeing where it will bring us.
March 10, 2018
I wish I read this when it came out. A good introduction to cryptocurrencies, their benefits and drawbacks, the history behind their formation, with a good sketch of future potential applications. I'd be lying if I said I fully understand blockchain technology just by reading this book, but this book helped give me at least some basis for understanding why cryptocurrencies matter and what blockchain technology could mean for both the present and the future.
November 18, 2024
Good but dated
The book presents a good mix of tech and societal impact and influence, but a lot has happened since 2015...
The book presents a good mix of tech and societal impact and influence, but a lot has happened since 2015...
April 4, 2021
This is a complete guide to cryptocurrency, in particular to the granddaddy of them all, Bitcoin. Because the subject is covered in all aspects and done with both enthusiasm and skepticism, it is the prefect tutorial and overview in an easy read. Five stars come easily. It was written in 2015 so it doesn't handle the wild rise of Bitcoin in value since that time.
The big question is whether cryptocurrency will become so common as to live up to the dream of its founders, the "cypherpunks," by replacing the banks that as a centralized intermediary between buyers and sellers have proven quite capable of bringing the economy down through greed only to fall into a safety net provided by the public, the same party that they took for a ride.
The big banks are in the rentier (RON-tee-a in French) position, that take a cut simply by being in a position to do so, much as the old European landed aristocracy could sit on the land and take rent for the use of it, or like toll takers in early America who could take money from anyone coming down a road before allowing travelers to continue on their way.
Ideally, a bank will stand at the center of a market assuring both parties in a transaction that it can be trusted to guarantee that transaction. We use Visa and Mastercard without thought of a vendor not providing what we are paying for because the banks behind the credit cards will make good on any transaction if the seller doesn't provide the service/product for which payment is made. If you or I are not satisfied with what we buy, we are given a refund and we don't need to worry about the vendor taking our money and giving us nothing in return.
This is a good thing and millions of users have been more than willing to use credit cards freely, knowing that as buyers the fee we pay for the service comes in higher prices that sellers charge to offset the 2-3% fee on each transaction that they must pay to the banks. There have been attempts to get sellers to charge less for cash sales, but that effort has failed meaning that when you buy something for cash you are providing extra profit for any merchant that takes credit cards. I have long accepted this and use cash wherever possible preferring to have the 2-3% amount go to the seller rather than the banks.
Cryptocurrencies could remove the banks as middlemen. Bitcoin works with an underlying system called the blockchain. This system keeps track of every Bitcoin transaction ever made in a ledger maintained by the Bitcoin miners that you have undoubtedly heard about. There are many miners and each one holds a perfect copy of the same back-to-the-beginning ledger that lets each and every user of Bitcoin know how every Bitcoin ever created is distributed. The ledger is public, anyone can examine it to see how the total amount of Bitcoin is distributed among all the holders of "wallets," but every wallet is anonymous with no way of knowing who holds each wallet.
There can be no cheating, no creation of money out of thin air as the banks do when issuing loans. If the ledger says a party doesn't have the amount of Bitcoin needed for a transaction then the transaction cannot take place. There is no central authority (the banks) keeping a ledger but a multitude of decentralized parties all with the same ledger that authenticates every payment.
There will never be more than 21 million Bitcoins and these are created increasing difficulty by design with the final Bitcoin being awarded in 2140. The miners are paid for the work of maintaining the ledger by the award of Bitcoins on a random basis. A great amount of computing power is needed to do the number crunching that qualifies a miner to be in the pool for the next randomly assigned Bitcoin. As of the spring of 2021, Bitcoin mining was using about the same amount of electricity as Argentina. Yes, it is a gold rush with all the frenzy for the next "find" that will not be a lode in the earth but a digital code on the Internet. Don't forget there is no physical Bitcoin.
This brief account from what I learned in the book gives an idea of what cryptocurrencies are, but Paul Vigna goes far beyond the technical to tell the reader of the founders, of those who are pushing cryptocurrencies, of the farms run by venture capitalists where coders toil to produce variations and new applications of the concept. He writes of the challenges, of the competing digital currencies, of the infamous failure of Mt. Gox, of the attitude of governments toward this new threat to government control over currency. China has banned it.
A major problem that I see with Bitcoin or any cryptocurrency is it must be widely held in order to offer a real challenge to the banks. Before that time comes, if it ever does, a user of Bitcoin that intends to use it in transactions rather than simply holding it must continually be exchanging Bitcoin for dollars (or renminbi or yen, etc.). Because the value of Bitcoin in dollars is wildly fluctuating, this exchange is fraught. I might sell something to you for Bitcoin and find just a month, or even a week later that my Bitcoin is worth a fraction of what it was when we made our transaction. It's true that the dollar also fluctuates in value but by a tiny amount and unless one is dealing with foreign currencies, these small fluctuations don't matter, they are not a threat to value. Bitcoin value must stabilize for the currency to go mainstream and until it goes mainstream it will not stabilize. That makes it wildly speculative for the foreseeable future. This doesn't make it a scam, but it does mean that some people are going to be very rich from speculation.
In the end, does the public care to have a replacement for the relatively small cost and great convenience of what the backs offer now? It would be satisfying to see the end of banking billionaires but would the public see any everyday benefit?
What of inflation? Bitcoin production is absolutely fixed at 21 million. Would we be back to the situation we had with gold? Unlike in the days of the gold standard, governments could not issue paper money that would cause inflation devaluing that paper. Nor could governments horde Bitcoin as they did gold. If the world were on one cryptocurrency standard there would be nothing to be issued that could devalue it. This is one area that the book doesn't address in providing an otherwise excellent education
The big question is whether cryptocurrency will become so common as to live up to the dream of its founders, the "cypherpunks," by replacing the banks that as a centralized intermediary between buyers and sellers have proven quite capable of bringing the economy down through greed only to fall into a safety net provided by the public, the same party that they took for a ride.
The big banks are in the rentier (RON-tee-a in French) position, that take a cut simply by being in a position to do so, much as the old European landed aristocracy could sit on the land and take rent for the use of it, or like toll takers in early America who could take money from anyone coming down a road before allowing travelers to continue on their way.
Ideally, a bank will stand at the center of a market assuring both parties in a transaction that it can be trusted to guarantee that transaction. We use Visa and Mastercard without thought of a vendor not providing what we are paying for because the banks behind the credit cards will make good on any transaction if the seller doesn't provide the service/product for which payment is made. If you or I are not satisfied with what we buy, we are given a refund and we don't need to worry about the vendor taking our money and giving us nothing in return.
This is a good thing and millions of users have been more than willing to use credit cards freely, knowing that as buyers the fee we pay for the service comes in higher prices that sellers charge to offset the 2-3% fee on each transaction that they must pay to the banks. There have been attempts to get sellers to charge less for cash sales, but that effort has failed meaning that when you buy something for cash you are providing extra profit for any merchant that takes credit cards. I have long accepted this and use cash wherever possible preferring to have the 2-3% amount go to the seller rather than the banks.
Cryptocurrencies could remove the banks as middlemen. Bitcoin works with an underlying system called the blockchain. This system keeps track of every Bitcoin transaction ever made in a ledger maintained by the Bitcoin miners that you have undoubtedly heard about. There are many miners and each one holds a perfect copy of the same back-to-the-beginning ledger that lets each and every user of Bitcoin know how every Bitcoin ever created is distributed. The ledger is public, anyone can examine it to see how the total amount of Bitcoin is distributed among all the holders of "wallets," but every wallet is anonymous with no way of knowing who holds each wallet.
There can be no cheating, no creation of money out of thin air as the banks do when issuing loans. If the ledger says a party doesn't have the amount of Bitcoin needed for a transaction then the transaction cannot take place. There is no central authority (the banks) keeping a ledger but a multitude of decentralized parties all with the same ledger that authenticates every payment.
There will never be more than 21 million Bitcoins and these are created increasing difficulty by design with the final Bitcoin being awarded in 2140. The miners are paid for the work of maintaining the ledger by the award of Bitcoins on a random basis. A great amount of computing power is needed to do the number crunching that qualifies a miner to be in the pool for the next randomly assigned Bitcoin. As of the spring of 2021, Bitcoin mining was using about the same amount of electricity as Argentina. Yes, it is a gold rush with all the frenzy for the next "find" that will not be a lode in the earth but a digital code on the Internet. Don't forget there is no physical Bitcoin.
This brief account from what I learned in the book gives an idea of what cryptocurrencies are, but Paul Vigna goes far beyond the technical to tell the reader of the founders, of those who are pushing cryptocurrencies, of the farms run by venture capitalists where coders toil to produce variations and new applications of the concept. He writes of the challenges, of the competing digital currencies, of the infamous failure of Mt. Gox, of the attitude of governments toward this new threat to government control over currency. China has banned it.
A major problem that I see with Bitcoin or any cryptocurrency is it must be widely held in order to offer a real challenge to the banks. Before that time comes, if it ever does, a user of Bitcoin that intends to use it in transactions rather than simply holding it must continually be exchanging Bitcoin for dollars (or renminbi or yen, etc.). Because the value of Bitcoin in dollars is wildly fluctuating, this exchange is fraught. I might sell something to you for Bitcoin and find just a month, or even a week later that my Bitcoin is worth a fraction of what it was when we made our transaction. It's true that the dollar also fluctuates in value but by a tiny amount and unless one is dealing with foreign currencies, these small fluctuations don't matter, they are not a threat to value. Bitcoin value must stabilize for the currency to go mainstream and until it goes mainstream it will not stabilize. That makes it wildly speculative for the foreseeable future. This doesn't make it a scam, but it does mean that some people are going to be very rich from speculation.
In the end, does the public care to have a replacement for the relatively small cost and great convenience of what the backs offer now? It would be satisfying to see the end of banking billionaires but would the public see any everyday benefit?
What of inflation? Bitcoin production is absolutely fixed at 21 million. Would we be back to the situation we had with gold? Unlike in the days of the gold standard, governments could not issue paper money that would cause inflation devaluing that paper. Nor could governments horde Bitcoin as they did gold. If the world were on one cryptocurrency standard there would be nothing to be issued that could devalue it. This is one area that the book doesn't address in providing an otherwise excellent education
August 13, 2017
Perhaps the best general introduction to bitcoin there is at the moment. It looks at salient aspects of the financial system along with the social and business aspects of the bitcoin economy.
There is a remarkably diverse set of interests involved in bitcoin and other cryptocurrencies. This book does a great job of running through the formative ideas that have driven the interest and development of Bitcoin.
It starts with a discussion of money and the shared belief that is required to give a currency value. Then describes the bootstrapping of the bitcoin network, with Satoshi Nakamoto publishing a white-paper and releasing the program required to activate the network. Early contributions of Hal Finnley and Gavin Anderson were highlighted.
While the technical issues were being ironed out there was also a social development of a community to support the currency, building the trust demanded by the nature of the domain. The Bitcoin Faucet was developed to give away bitcoins for free. The first purchase of a pizza for bitcoin was an important development getting the ball rolling for a new economy trading real tangible things.
One of the first large enterprises was SilkRoad a secretive marketplace where the main products were illegal drugs. This drove substantial transaction volume at the time and gave the currency a bad reputation.
The first exchanges where people could buy Bitcoin started without sufficient organizational structure. Many of their early customers were buying drugs, a situation that was difficult for nascent exchanges. Disorganization in financial organizations tends to lead to losses. This formative period certainly makes for a colourful story.
At the same time the dominant payment industry carries substantial security weaknesses. Many security breaches have compromised customer data that would not be vulnerable with bitcoin transactions. The gatekeepers to the financial industry also add substantial costs to many transactions, particularly small ones. Across the world, as more people find out about Bitcoin, the community grows despite the challenges.
The discussion of mining, focuses not on the technical aspects but the business and it's implications.
Many business are starting now, often with the support of venture capitalists and business incubators, particularly in the silicon valley. The culture and energy of the many entrepreneurs there are likely to drive many future innovations. These innovations in turn build the community and technology that will push Bitcoin forward in the next phase of the growth.
From the very opening of the book the authors show great interest in the unbanked. People who are not served by the
financial system as they are considered too poor to substantially drive the profitability of major financial institutions. Some people are also isolated by their culture or government. Since many poor countries around the world have largely adopted cell phones, there is a great opportunity for digital currencies to support development of financial services for people who previously had no access to them. The example from Afghanistan is quite inspiring.
Satoshi Dice is described as a second generation bitcoin application that makes a novel use to the blockchain to create a gambling system that is provably fair. The gambler is less at the mercy of the casino. It may not be as inspiring, but it is a great technical example of an application where a clearly superior service is enabled by digital currency.
For a technical introduction I would recommend "Mastering Bitcoin" by Antonopoulos. For everything else this is a great book.
Clearly many more creative applications are coming. It is impossible to predict what they will be. But this discussion with concrete examples give a good foundation for understanding what is becoming possible.
There is a remarkably diverse set of interests involved in bitcoin and other cryptocurrencies. This book does a great job of running through the formative ideas that have driven the interest and development of Bitcoin.
It starts with a discussion of money and the shared belief that is required to give a currency value. Then describes the bootstrapping of the bitcoin network, with Satoshi Nakamoto publishing a white-paper and releasing the program required to activate the network. Early contributions of Hal Finnley and Gavin Anderson were highlighted.
While the technical issues were being ironed out there was also a social development of a community to support the currency, building the trust demanded by the nature of the domain. The Bitcoin Faucet was developed to give away bitcoins for free. The first purchase of a pizza for bitcoin was an important development getting the ball rolling for a new economy trading real tangible things.
One of the first large enterprises was SilkRoad a secretive marketplace where the main products were illegal drugs. This drove substantial transaction volume at the time and gave the currency a bad reputation.
The first exchanges where people could buy Bitcoin started without sufficient organizational structure. Many of their early customers were buying drugs, a situation that was difficult for nascent exchanges. Disorganization in financial organizations tends to lead to losses. This formative period certainly makes for a colourful story.
At the same time the dominant payment industry carries substantial security weaknesses. Many security breaches have compromised customer data that would not be vulnerable with bitcoin transactions. The gatekeepers to the financial industry also add substantial costs to many transactions, particularly small ones. Across the world, as more people find out about Bitcoin, the community grows despite the challenges.
The discussion of mining, focuses not on the technical aspects but the business and it's implications.
Many business are starting now, often with the support of venture capitalists and business incubators, particularly in the silicon valley. The culture and energy of the many entrepreneurs there are likely to drive many future innovations. These innovations in turn build the community and technology that will push Bitcoin forward in the next phase of the growth.
From the very opening of the book the authors show great interest in the unbanked. People who are not served by the
financial system as they are considered too poor to substantially drive the profitability of major financial institutions. Some people are also isolated by their culture or government. Since many poor countries around the world have largely adopted cell phones, there is a great opportunity for digital currencies to support development of financial services for people who previously had no access to them. The example from Afghanistan is quite inspiring.
Satoshi Dice is described as a second generation bitcoin application that makes a novel use to the blockchain to create a gambling system that is provably fair. The gambler is less at the mercy of the casino. It may not be as inspiring, but it is a great technical example of an application where a clearly superior service is enabled by digital currency.
For a technical introduction I would recommend "Mastering Bitcoin" by Antonopoulos. For everything else this is a great book.
Clearly many more creative applications are coming. It is impossible to predict what they will be. But this discussion with concrete examples give a good foundation for understanding what is becoming possible.
March 25, 2018
A balanced and thoughtful book.
The author, to start with, is not a crypto-fanatic. He does not cover the topic chronologically, another positive. Rather, he looks at various themes surrounding the concept and analyze the developments.
The book starts with a quick, even if highly simplified, summary of the roles of money. This allows him to nicely highlight the fundamental positives of bitcoin including its decentralized nature, the authorities' inability to debase the value over time whimsically, the anonymity and security offered by its transactions and also the untold (or very sparsely discussed) non-fractional-reserve-nature of (no multiplier) this currency.
The author finds good ways to traverse through the coin's highly interesting evolution including the mysterious nature of the inventor, the abuse by the nefarious elements in need of privacy and also scandals caused by the intermediaries that were nowhere as precise or technologically pure in their products as the bitcoin itself.
The questions they raise substantially undermine the positives offered. Real-life people misplace wallets. Many still recover them due to the deeds of good samaritans or with the help of the authorities. God save one if one loses the bitcoin password. If one dies without revealing the password to the inheritant, it is far worse than burying one's gold in the Sahara unmarked. Excessive privacy, like excessive security, has its own problems. You are swindled in a transaction and there is no way to reverse the payment or identify the counterparty. As examples described in the book highlight, excessive privacies and security are largely sought by people with something to hide rather than just those ideologically inclined.
It helps that the book is much more than about the bitcoin. Cryptocurrencies are prone to abuses by their creators too fortified behind the unbreakable technology. And, none of this protects one when the middlemen like exchanges or wallet providers - absolutely essential for most of us - mess up (or are messed up) - after all, we live in a world where companies with massive technology budgets are regularly hacked.
As the sections on blockchain show, none of the above should imply that this is not a revolutionary development. The author rightly concludes that the eventual cryptocurrencies and transactions could take completely different form compared to those dreamt by Satoshi or expected by the current supporters. These innovations have the power to change the world completely and one needs to keep up with them, but while retaining ones sanity about the benefits they provide and without being blinded by the dislike one may have for the existing systems.
The author, to start with, is not a crypto-fanatic. He does not cover the topic chronologically, another positive. Rather, he looks at various themes surrounding the concept and analyze the developments.
The book starts with a quick, even if highly simplified, summary of the roles of money. This allows him to nicely highlight the fundamental positives of bitcoin including its decentralized nature, the authorities' inability to debase the value over time whimsically, the anonymity and security offered by its transactions and also the untold (or very sparsely discussed) non-fractional-reserve-nature of (no multiplier) this currency.
The author finds good ways to traverse through the coin's highly interesting evolution including the mysterious nature of the inventor, the abuse by the nefarious elements in need of privacy and also scandals caused by the intermediaries that were nowhere as precise or technologically pure in their products as the bitcoin itself.
The questions they raise substantially undermine the positives offered. Real-life people misplace wallets. Many still recover them due to the deeds of good samaritans or with the help of the authorities. God save one if one loses the bitcoin password. If one dies without revealing the password to the inheritant, it is far worse than burying one's gold in the Sahara unmarked. Excessive privacy, like excessive security, has its own problems. You are swindled in a transaction and there is no way to reverse the payment or identify the counterparty. As examples described in the book highlight, excessive privacies and security are largely sought by people with something to hide rather than just those ideologically inclined.
It helps that the book is much more than about the bitcoin. Cryptocurrencies are prone to abuses by their creators too fortified behind the unbreakable technology. And, none of this protects one when the middlemen like exchanges or wallet providers - absolutely essential for most of us - mess up (or are messed up) - after all, we live in a world where companies with massive technology budgets are regularly hacked.
As the sections on blockchain show, none of the above should imply that this is not a revolutionary development. The author rightly concludes that the eventual cryptocurrencies and transactions could take completely different form compared to those dreamt by Satoshi or expected by the current supporters. These innovations have the power to change the world completely and one needs to keep up with them, but while retaining ones sanity about the benefits they provide and without being blinded by the dislike one may have for the existing systems.
January 5, 2017
Good if nor brilliant book on the history, present developments and possible future paths of both Bitcoin the currency and what the authors distinguish as Bitcoin the technology (i.e. Blockchain).
The book starts with a brief discussion of the history of money including the debate between those who argue for a commodity backed currency (metallists and most commonly gold enthusiasts) and those who see it more as a token (and politically tend towards Kenyesian views).
It then traces the genesis of Bitcoin and its launch among the cypberpunk community including some discussion of the potential identity of Satoshi Nakomato and some interesting detail on the first transactions and issues. The book then considers the Bitcoin community that quickly grew up and their overarching dogmatic belief in decentralisation and freedom from government oversight (shading at times to anarchism and crime such as Silk Road) before continuing with the early and often volatile history of Bitcoin.
The book then gives a good explanation of blockchain technology as well as the fundamental to Bitcoin concept of mining - with a detailed chapter on the computational arms race that this has lead to. The next overly detailed chapters consider different areas of application, in turn: various businesses built around Bitcoin; Bitcoin as a way to reach the unbanked; the wider applications of Blockchain technology.
The next section goes to the heart of the debate around Bitcoin and blockchain - does it continue to follow the decentralised model central to its original conception and dear to the heart of its most evangelical proponents or can the technology be harnessed in a more regulated way and/or by existing institutions (financial or governmental).
Various alternate crypto currencies are discussed - including Ripple (effectively a currency run by financial institutions) and Ethereum (which more focuses on the recording of documents and contracts).
The book then concludes with a discussion of possible futures - the authors are clearly of the view that the move to decentralisation of financial transactions/banking away from the current rent extracting quasi-oligopolistic banking intermediaries is both inevitable and fundamentally desirable. They are however open about some of Bitcoin's susceptibilities (the poor brand reputation it still has among all but enthusiasts, the lack of bandwidth, the challenges caused by the mining concept and even the irrelevance of the monetary transactions and creations of new coins to many of the uses which really only need the centralised ledger of blockchain).
The book starts with a brief discussion of the history of money including the debate between those who argue for a commodity backed currency (metallists and most commonly gold enthusiasts) and those who see it more as a token (and politically tend towards Kenyesian views).
It then traces the genesis of Bitcoin and its launch among the cypberpunk community including some discussion of the potential identity of Satoshi Nakomato and some interesting detail on the first transactions and issues. The book then considers the Bitcoin community that quickly grew up and their overarching dogmatic belief in decentralisation and freedom from government oversight (shading at times to anarchism and crime such as Silk Road) before continuing with the early and often volatile history of Bitcoin.
The book then gives a good explanation of blockchain technology as well as the fundamental to Bitcoin concept of mining - with a detailed chapter on the computational arms race that this has lead to. The next overly detailed chapters consider different areas of application, in turn: various businesses built around Bitcoin; Bitcoin as a way to reach the unbanked; the wider applications of Blockchain technology.
The next section goes to the heart of the debate around Bitcoin and blockchain - does it continue to follow the decentralised model central to its original conception and dear to the heart of its most evangelical proponents or can the technology be harnessed in a more regulated way and/or by existing institutions (financial or governmental).
Various alternate crypto currencies are discussed - including Ripple (effectively a currency run by financial institutions) and Ethereum (which more focuses on the recording of documents and contracts).
The book then concludes with a discussion of possible futures - the authors are clearly of the view that the move to decentralisation of financial transactions/banking away from the current rent extracting quasi-oligopolistic banking intermediaries is both inevitable and fundamentally desirable. They are however open about some of Bitcoin's susceptibilities (the poor brand reputation it still has among all but enthusiasts, the lack of bandwidth, the challenges caused by the mining concept and even the irrelevance of the monetary transactions and creations of new coins to many of the uses which really only need the centralised ledger of blockchain).
January 1, 2018
The "Age of Cryptocurrency" provides a great introduction of bitcoin, tracing from its ideological and technical roots and discussing its impact to the financial world and the future of money. The authors provide an interesting narrative of bitcoin, from how it started (which happens during the banking crisis in 2008 when the trust in the banking system was low) as a proof-of-concept of a decentralized, irrefutable digital currency in a trustless environment, and gained momentum in the few years since then.
The authors are reporters from WSJ and the book ponders about the potential impact bitcoin will have on the world's financial system and the economy, and how the different states and regulators will deal with this new digital technology. This is a non-technical book that provides the reader a fundamental knowledge on bitcoin, which is the foundation of many cryptocurrencies and blockchain projects that sprung up.
Even though the first edition of this book was published in early 2015 and a revision in 2016 (and there were many important developments in bitcoin and other cryptocurrencies since then, not including the dramatic and wild rise of bitcoin price), it provides great context for anyone want to keep up with the latest news and development of bitcoin, its peers and all things related to blockchain.
I particularly enjoy the colorful story of how bitcoin first started, the project initiated by Satoshi Nakamoto and the handful of developers in the Bitcoin Core working with the community of developers in improving the software.
Don't expect to learn everything about bitcoin and blockchain from this book. However, since it provides the necessary context of this new technology and phenomenon, the book is a good reading for anyone interested in learning and keeping up all about bitcoin and blockchain and be able to participate in the debates in cryptocurrency versus fiat currency controlled by central banks.
The authors are reporters from WSJ and the book ponders about the potential impact bitcoin will have on the world's financial system and the economy, and how the different states and regulators will deal with this new digital technology. This is a non-technical book that provides the reader a fundamental knowledge on bitcoin, which is the foundation of many cryptocurrencies and blockchain projects that sprung up.
Even though the first edition of this book was published in early 2015 and a revision in 2016 (and there were many important developments in bitcoin and other cryptocurrencies since then, not including the dramatic and wild rise of bitcoin price), it provides great context for anyone want to keep up with the latest news and development of bitcoin, its peers and all things related to blockchain.
I particularly enjoy the colorful story of how bitcoin first started, the project initiated by Satoshi Nakamoto and the handful of developers in the Bitcoin Core working with the community of developers in improving the software.
Don't expect to learn everything about bitcoin and blockchain from this book. However, since it provides the necessary context of this new technology and phenomenon, the book is a good reading for anyone interested in learning and keeping up all about bitcoin and blockchain and be able to participate in the debates in cryptocurrency versus fiat currency controlled by central banks.
June 11, 2017
My brother is working for a cryptocurrency startup, but I felt like I didn't really understand what a cryptocurrency was or why it was useful. I realized something I had been missing about bitcoin: no one thinks that bitcoins are, in and of themselves, valuable. It is simply that they trust the whole bitcoin system will hold the value they put into it long enough to take it out again later with about the same or maybe more value. Demand for limited supply and speculation push the price up, but in the long term (if not replaced by something better) it will just be a way of allowing trust between people who otherwise couldn't trust each other. It's just like how the banking system allows me to earn interest by loaning money to people who want to borrow it, without knowing them personally, and creating value by allowing that exchange to take place. The amount of wealth in the world actually increases because of the existence of bitcoin because it allows people who otherwise wouldn't be able to exchange goods and services to do so.
Also, that the key innovation is the removal of the need for a central authority to support the currency and keep track of who owes who what.
The chapters in the middle about the personalities involved and the dramas of their involvement and the ups and downs of the price of the currency were boring and I skipped them. The ideas at the end about the possible changes to the future financial system and uses of cryptocurrencies during a financial crisis were much more interesting.
Also, that the key innovation is the removal of the need for a central authority to support the currency and keep track of who owes who what.
The chapters in the middle about the personalities involved and the dramas of their involvement and the ups and downs of the price of the currency were boring and I skipped them. The ideas at the end about the possible changes to the future financial system and uses of cryptocurrencies during a financial crisis were much more interesting.
January 10, 2018
This was a solid book on bitcoin and the blockchain, mostly a non-technical view on how the technology came about, what the current and potential uses are, and some potential future outcomes in terms of penetration will be. This went slightly deeper than Digital Gold on the actual financial implications and overall capabilities of the blockchain, as it was less of a novel. However, of course there were some redundancies due to the same characters from early on in bitcoin's history appearing in both. Overall, a solid read and a good foundational book for those trying to understand cryptocurrency and its implications.
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From another review:
At 2 years old, this is already feeling dated, but it gives a detailed look at the start of the blockchain 'revolution' in progress. The authors' backgrounds in finance/economy give them a particular slant but it doesn't keep them from diving into the cultural and technological effects of blockchain technology. As expected, there are some interesting guesstimates as to where the new tech might take us, but given what blockchain can already do out of the box, so to speak, is pretty impressive.
Required reading for a baseline in blockchain, but you'll want to add some newer sources to your reading stack, probably including some blogs/news feeds to keep up. This tech is so new the changes are coming quick and heavy
---------------------------
From another review:
At 2 years old, this is already feeling dated, but it gives a detailed look at the start of the blockchain 'revolution' in progress. The authors' backgrounds in finance/economy give them a particular slant but it doesn't keep them from diving into the cultural and technological effects of blockchain technology. As expected, there are some interesting guesstimates as to where the new tech might take us, but given what blockchain can already do out of the box, so to speak, is pretty impressive.
Required reading for a baseline in blockchain, but you'll want to add some newer sources to your reading stack, probably including some blogs/news feeds to keep up. This tech is so new the changes are coming quick and heavy
February 12, 2020
Why is this not in the news? It’s life changing.
I found this book to be very thorough and it addresses the history, the challenges, and possible future of cryptocurrencies and Blockchain technology. I was amazed to discover how many companies are currently accepting Bitcoins as payment in today’s market.
This service has the potential of dramatically cutting costs and building efficiencies that society as a whole will benefit from, but it’s also going to be a disruptive change and will eliminate millions of jobs. This technology is growing exponentially each and every day and will change the world as we know it.
When I talk to my friends many are not aware of this technology or its implications, so I would encourage all of us to get a basic understanding of this shift and another good book you might consider is Rise of the Robots: Technology and the Threat of a Jobless Future
I found this book to be very thorough and it addresses the history, the challenges, and possible future of cryptocurrencies and Blockchain technology. I was amazed to discover how many companies are currently accepting Bitcoins as payment in today’s market.
This service has the potential of dramatically cutting costs and building efficiencies that society as a whole will benefit from, but it’s also going to be a disruptive change and will eliminate millions of jobs. This technology is growing exponentially each and every day and will change the world as we know it.
When I talk to my friends many are not aware of this technology or its implications, so I would encourage all of us to get a basic understanding of this shift and another good book you might consider is Rise of the Robots: Technology and the Threat of a Jobless Future
January 15, 2018
This book can be a great starting point if you have a rudimentary understanding of money. However, one still can enjoy the latter chapters of this book where the ins and outs of the bitcoin ecosystem have been fleshed out for the everyday reader. But without an inkling of monetary theory, it would be tough for anyone to grasp how bitcoin, with its limited supply and mob-ascribed value, can upend the traditional nation-state issued fiat currencies.
The thing is that Bitcoin is many things. It's a currency. It's a ledger. It's a wallet and a payment processing system. But it's more than that. It's the promise of decentralization and democratization wrapped in strings of 0's and 1's. In a nutshell, it's the ultimate dream of an anarchist to burn the establishment down. But without fully understanding that dream, this book will come off as a collection of articles on novel Silicon Valley Startups. And that's the pitfall.
The thing is that Bitcoin is many things. It's a currency. It's a ledger. It's a wallet and a payment processing system. But it's more than that. It's the promise of decentralization and democratization wrapped in strings of 0's and 1's. In a nutshell, it's the ultimate dream of an anarchist to burn the establishment down. But without fully understanding that dream, this book will come off as a collection of articles on novel Silicon Valley Startups. And that's the pitfall.
February 23, 2018
A solid introduction to the history and benefits of cryptocurrency as well as the underlying blockchain technology. Best for those wanting to take their knowledge of these subjects up from “just a little” to “a little better” understanding. While some of the concepts provided were a bit challenging for this liberal arts major to wrap his head around, I couldn’t help but think back my initial inability in the 1990s to grasp the relevance and importance of “email” and the “world wide web” of things, two technologies that are now as much a part of my daily routine as food and water. With that in mind, I felt determined and somewhat obligated to plow through this rather dry book as part of an ongoing effort to stay on top of technology changes and try, at least, to be culturally conversant in these fast moving times. Worth a read or even a heavy skim. 3.5 stars.
January 22, 2019
A history of money begins this book on cryptocurrency. Following the history (and interesting philosophy discussion about the meaning of value), the book drills into the history of cryptocurrency and the use of blockchain technology to track its use. The author takes what could be a technical subject and gives just enough description to help non-technical readers understand what is going on when they hear these terms. The book provides a lot of recent history on cryptocurrency, including magazine-style profiles of many leading figures in the industry. Many of the ups and downs of the value of cryptocurrency and attempts at regulation are documented. The book ends with a discussion of the future of cryptocurrency. Written in a popular style, not academic. Good for those wanting a readable introduction.
April 30, 2015
While I would dispute certain of the Vigna's individual ideas, and while no one can come close to knowing what impact Bitcoin, blockchain technology, etc., will have in the future, The Age of Cryptocurrency was surprisingly reasonable for a book on a topic that draws so much ridiculous commentary. Vigna has an optimistic but not zealously religious view of the subject. The book points out the possibilities, ranging from the most plausible to the most pie-in-the-sky, and the challenges that cryptocurrencies and related technologies face. It would be pretty good reading for someone who's curious about cryptocurrencies who's not looking to comb through the corners of the internet reading through dense technical explanations or abstruse economic arguments.
June 29, 2017
Interesting book to learn about the history and background of bitcoin and blockchain technologies. I think there are two parts in the book. The first part on the origins of bitcoin & blockchain, adoption, struggles, innovation is very informative. Seeing how adoption, trust, hype and fear develop as a series of major events, some inside the bitcoin community (eg mtGox failure) or in the wider world (eg greek crises) helps to understand the current state of affairs.
Somewhere in the second half of the book, the action got thin and the pages long and boring. Personally, i think chapters 8-11 could have been written in a fraction of the pages it took.
But the first half was worth it for me.
Somewhere in the second half of the book, the action got thin and the pages long and boring. Personally, i think chapters 8-11 could have been written in a fraction of the pages it took.
But the first half was worth it for me.
November 10, 2014
The book is well written, but some of the strictly economic and legal aspects have been particularly difficult for me to understand. However, the future of Bitcoin is still completely open and it will be interesting to see how it all turns out.
Il libro é ben scritto, ma alcuni dei passaggi strettamente economici e giuridici sono stati per me particolarmente difficili da capire. Comunque il futuro del Bitcoin é ancora completamente aperto e sará interessante per tutti vedere come andrá a finire.
THANKS TO NETGALLEY AND ST.MARTIN'S PRESS FOR THE PREVIEW!
Il libro é ben scritto, ma alcuni dei passaggi strettamente economici e giuridici sono stati per me particolarmente difficili da capire. Comunque il futuro del Bitcoin é ancora completamente aperto e sará interessante per tutti vedere come andrá a finire.
THANKS TO NETGALLEY AND ST.MARTIN'S PRESS FOR THE PREVIEW!
August 24, 2015
A reasonable overview of the history of cryptocurrency and its importance. Before reading this book, Bitcoin was just another buzzword in the tech industry that I didn't pay a lot of attention too. After finishing this book, I feel like I have a better grasp of what the movement is trying to achieve and how it works as a currency.
January 27, 2018
Essentially the history of Bitcoin and the blockchain. A great explanation of the early days of the mysterious creator of bitcoin, Satoshi Nakamoto, and some guesses as to who it night be. The book goes on to talk about the scandal of the silk road, the rise and fall of mtgox and the various ways in which bitcoin and cryptocurrencies can we used in the real world.
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