The bitcoin guidebook how to obtain, invest, and spend the worlds first decentralized cryptocurrency

Copyright © 2016 by Ian DeMartino All rights reserved No part of this book may be reproduced in any manner without the express written consent of the publisher, except in the case of brief excerpts in critical reviews or articles All inquiries should be addressed to Skyhorse Publishing, 307 West 36th Street, 11th Floor, New York, NY 10018 Skyhorse Publishing books may be purchased in bulk at special discounts for sales promotion, corporate gifts, fund-raising, or educational purposes Special editions can also be created to specifications For details, contact the Special Sales Department, Skyhorse Publishing, 307 West 36th Street, 11th Floor, New York, NY 10018 or info@skyhorsepublishing.com Skyhorse® and Skyhorse Publishing® are registered trademarks of Skyhorse Publishing, Inc.®, a Delaware corporation Visit our website at www.skyhorsepublishing.com 10 Library of Congress Cataloging-in-Publication Data is available on file Cover design by Rain Saukas Print ISBN: 978-1-63450-524-6 Ebook ISBN: 978-1-5107-0148-9 Printed in the United States of America To my parents, Jon and Tamah, for always supporting me To my girlfriend, Laura, for teaching me how to work and live To my editors, Jon, Erica, Olga, and Joe, for putting up with me And to all the freaks and geeks on the Internet for being the world’s greatest teachers Thank you CONTENTS Foreword Keywords Who’s Who SECTION I: WHAT IS BITCOIN? Chapter 1: Bitcoin 101: Blockchain Technology Chapter 2: A Practical Guide on How to Buy, Save, and Spend Bitcoins Chapter 3: Precursors, History and Creation, Satoshi’s White Paper Chapter 4: Who Runs Bitcoin? Chapter 5: What Gives Bitcoin Its Value? Chapter 6: Bitcoin: Anonymous or Pseudonymous? Chapter 7: Bitcoin and the Criminal Element Chapter 8: Mt Gox: Bitcoin’s Defining Moment? Chapter 9: Other Bitcoin Scams and Common Tactics SECTION II: HOW TO INVEST IN BITCOIN Chapter 10: How to Buy Bitcoin with a Bank Account, Cash, or PayPal Chapter 11: Working for Bitcoin Chapter 12: Mining Chapter 13: HODL! Chapter 14: Day Trading Chapter 15: Altcoin Trading and Pump-and-Dumps Chapter 16: Peer-to-Peer Lending Chapter 17: Investing in Other Commodities Using Bitcoin SECTION III: WHAT CAN BITCOIN DO FOR ME? Chapter 18: Remittance Chapter 19: Microtransactions Chapter 20: Start-up Funding SECTION IV: THE FUTURE OF BITCOIN Chapter 21: Altcoins and Bitcoin 2.0 Projects Chapter 22: Distributed Autonomous Corporations, Governance, and Niche Economies Index Foreword This is my first book, so I can’t pretend to be an expert on how these things are supposed to go What I know is that when you sit down to write a book, you should make sure you know who your audience is This is true about writing anything, but it is particularly true when you sit down to write 80,000 words No one wants to look back on all that work and think to themselves, What was it all for? So I spent some time thinking about whom this book should address I knew right away it wouldn’t be for programmers; I am not a programmer and they understand what is “under the hood” of Bitcoin better than I, so there is no point in me trying to speak to them Mastering Bitcoin: Unlocking Digital Cryptocurrencies by Andreas M Antonopoulos is a much better book for programmers I also knew it wouldn’t be targeted at investors I have never had the kind of disposable income to get serious about day-trading cryptocurrencies There are dozens of ebooks by former Wall Street investors and current Bitcoin day traders who have far more experience in that field than I I decided to write the kind of Bitcoin book I would want to read, had I been picking up a book about Bitcoin in 2012, before I started writing about it professionally What I would have wanted back then was a book that explained Bitcoin to me in terms that I could understand, but didn’t hold back on letting me know what is possible I also would have wanted to be informed about both the good and the bad of cryptocurrencies It seems to me that Bitcoin evangelists too often gloss over the negative aspects of the community and with this book I intended on covering everything, warts and all One book, BitCon: The Naked Truth About Bitcoin, touched on some of these subjects, but it was rather short and seemed determined to make an ideological point rather than giving an honest look It was all warts, nothing else This book doesn’t shy away from the bad things Bitcoin is doing and the pitfalls it faces, but neither does it ignore the light that appears to be just over the metaphorical horizon, giving reason for hope By the end of this book I want you, the reader, to be able to discuss Bitcoin’s ins and outs with anyone—from its past to its present to its potential future You won’t go from reading this book to programming the next great Bitcoin service, but the next time you hear someone mention Bitcoin at a dinner party, I guarantee you will be able to keep up in the conversation This book won’t make you excel at any one aspect of Bitcoin Rather, it is designed to make you a “Jack of all trades” or a “B student” in Bitcoin You will understand it, you will understand how to use it, you will know where it came from, and you will have an idea of where it is going However you have obtained this book, I thank you for taking the time to read it and I hope you find it helpful in some way If you would like to donate to the author, you can so with the following QR code: Bitcoin Address: 3Bi1fhng5LfoDzue5MTfGw9PgHNKKgRkVt Disclaimer: Although I have attempted to make this book as accurate as possible, cryptocurrencies are complex and constantly evolving So it is worth mentioning right off the bat: your own research —things can change from month to month and week to week I also make no claim to the legitimacy of the companies mentioned in this book, as their status can change at any time Keywords altcoin: Short for “alternative cryptocurrency”; another cryptocurrency similar to Bitcoin There are more than a thousand altcoins currently in existence; most are nearly exact copies of more successful cryptocurrencies, but some very innovative ones have been produced as well ASIC: Application-specific integrated circuit A piece of hardware designed to one thing and one thing only In the cryptocurrency world, it mines for a specific algorithm (SHA256, Scrypt, etc.) BFGMiner: The second most-popular Bitcoin-mining software Bitcoin/bitcoin: Bitcoin with a capital B refers to Bitcoin the system, the network or the currency as a whole; bitcoin with a lowercase b refers to individual bitcoins, as in, “I have five bitcoins.” Bitcoin-Qt: Also called Bitcoin Core, it is the primary implementation of Bitcoin and what all other wallets and services are based on Bitcoin XT: An alternative implementation of the Bitcoin code, compatible with the current main implementation of Bitcoin, that was pushed primarily by Gavin Andresen and Mike Hearn It is used to test new features and entered the public consciousness as a possible replacement for Bitcoin-Qt if the various factions in the block size debate could not reach a compromise It offered 20MB-sized blocks as a primary feature block: Transactions on the blockchain are grouped into blocks, confirmed by miners roughly every 10 minutes They are currently limited to 1MB in size but that is likely to change in the near future blockchain: The decentralized public ledger that makes Bitcoin work Every transaction and account is kept track of here Not to be confused with Blockchain.info the website or its parent company, Blockchain Also used to refer to any upcoming technology that uses a public ledger to keep track of digital value; i.e., “They are developing their own blockchain technology.” block explorer: A website or piece of software that allows users to observe and follow Bitcoin transactions through the blockchain Can also be used to describe similar systems for altcoins’ blockchains CGMiner: The most popular Bitcoin-mining software cold wallet: A wallet on a computer or storage disk that is not connected to the Internet and must be momentarily connected to the Internet and turned into a hot wallet in order to sign transactions Can then be turned back into a cold wallet core developer: Developer of a cryptocurrency who has access to git commits in the site’s GitHub technology survive Former Namecoin developer and advocate Michael Dean disagrees, calling the technology “dead.” He believes the coin will never take off the way it should because, among other things, the developers didn’t focus on adoption and usability: It’s had nearly four years to catch on, and it has pretty much zero adoption There are 100,000s of squatted domains, but only about 30 developed Dot-Bit sites All of those are mirrors of Dot-Com or Dot-Net or Dot-Org sites (as they probably should be, to provide redundancy and protection against censorship), and about half of those 30 sites are mine There are probably less than 5,000 people in the world set up to actually view Dot-Bit sites, based on downloads of MeowBit and FreeSpeechMe There was a lot of mining and trading of Namecoin, and a lot of squatting domains, but almost no building of domains or use of resolvers Dean makes a lot of good points and the developers’ apparent insistence on the small over the big picture probably hurt the coin significantly But long-term, it might not matter Although his concerns about a hostile ICANN (the entity that currently handles domain name registrations on the Internet) takeover hold some validity, apart from that, I see Namecoin surviving until someone more capable attempts to revive it Namecoin ultimately holds the rights to bit addresses, even if the useful ones have been bought out by parking companies This is valuable because bit isn’t a bad domain name system; it is memorable and relates to a lot of companies If and when bit addresses are integrated into regular browsers, an uncensorable Internet will be exposed to the world and there likely will be a market for that, however small or large it might be Will this happen? I’m not sure I wouldn’t bet on it But I also wouldn’t be as quick to write off Namecoin as Dean seems to be To be fair, he has been trying to get the coin off the ground for the past few years, while I am merely an outside observer Even copycat coins are prevented from scooping up bit addresses, so Namecoin is in the extremely rare position among cryptocurrencies of being open source but also protected from being directly copied by a lesser coin Someone else could make a similar uncensorable Internet, but they will have to think up another unused domain extension to it Namecoin has underperformed in this era of altcoins, because the era is focused almost entirely on speculative trading In the next era for altcoins, this won’t matter What matters is whether Namecoin has a reason to survive and it does This doesn’t mean it will survive but it has an advantage no other coin has Some of its developers might have lost sight of that but I still think it is significant Blackcoin Algorithm: N/A Mining Type: Proof-of-Stake “3.0” (Short PoW/PoS hybrid period for initial distribution) Block Time: minute, seconds Block Reward: 1% annual Maximum Blocksize: 1MB Total Number: No limit; currently ~74.5 million +