Introduction
Do you like the feeling of knowing what you’re doing? Bitcoin is the most secure money system there is, technically speaking. But what is technical security worth if users don’t have the knowledge to take advantage of it? Understanding what you’re doing is probably the best insurance against scammers and mistakes.
Tools for Bitcoin, for example wallets and mining equipment, are constantly improving and changing the landscape. It can be hard to navigate this rapidly changing environment without a solid understanding of the underlying technology, Bitcoin itself. Due to its decentralized nature, Bitcoin rarely changes; no one can change the protocol without overwhelming consensus among its users.
Grokking Bitcoin will not teach you any specific tools, like wallets, mining equipment, or other tools. Instead it focuses on the protocol itself, so that you’ll be able to use any current software or hardware tools -- and know what you’re doing. You’ll learn what the 24-word mnemonic backup phrase that the wallet gives you is, and you’ll know what “2 confirmations” means. All without any prior knowledge of the wallet software!
To guide the reader through the hard topics of Bitcoin, Grokking Bitcoin starts with a very simple money system, a cookie token spreadsheet, that anybody can intuitively understand. This system is improved upon in each chapter, until we end up working with the Bitcoin system. This will help you focus on one topic at a time without having to take in the full context of Bitcoin.
This minibook provides Chapters 2 and 6. Chapter 2 introduces the fictitious cookie token spreadsheet, and continues on to thoroughly explain the two most important topics in Bitcoin: cryptographic hash functions and digital signatures.
Chapter 6 describes the blockchain, which is where all historic Bitcoin transactions are stored. Full nodes, the first-class citizens of the Bitcoin network, download and verify the whole blockchain to make sure they aren’t fooled by malicious peers in the network. We also discuss how the blockchain enables the use of lightweight wallets, Bitcoin wallets that require less bandwidth and hardware than full nodes, but with less verification capabilities.
Enjoy!