12 Crypto as in cryptocurrency?

 

This chapter covers

  • Consensus protocols and how they make cryptocurrencies possible
  • The different types of cryptocurrencies
  • How the Bitcoin and Diem cryptocurrencies work in practice

Can cryptography be the basis for a new financial system? This is what cryptocurrencies have been trying to answer since at least 2008, when Bitcoin was proposed by Satoshi Nakamoto (who to this day has yet to reveal his or their identity). Before that, the term crypto was always used in reference to the field of cryptography. But since the creation of Bitcoin, I have seen its meaning quickly change, now being used to refer to cryptocurrencies as well. Cryptocurrency enthusiasts, in turn, have become more and more interested in learning about cryptography. This makes sense as cryptography is at the core of cryptocurrencies.

What’s a cryptocurrency? It is two things:

12.1 A gentle introduction to Byzantine fault-tolerant (BFT) consensus algorithms

12.1.1 A problem of resilience: Distributed protocols to the rescue

12.1.2 A problem of trust? Decentralization helps

12.1.3 A problem of scale: Permissionless and censorship-resistant networks

12.2 How does Bitcoin work?

12.2.1 How Bitcoin handles user balances and transactions

12.2.2 Mining BTCs in the digital age of gold

12.2.3 Forking hell! Solving conflicts in mining

12.2.4 Reducing a block’s size by using Merkle trees

12.3 A tour of cryptocurrencies

12.3.1 Volatility

12.3.2 Latency

12.3.3 Blockchain size

12.3.4 Confidentiality

12.3.5 Energy efficiency

12.4 DiemBFT: A Byzantine fault-tolerant (BFT) consensus protocol

12.4.2 A round in the DiemBFT protocol