Table Of Contents

Table Of Contents
Introduction
Chapter 1
What Is Bitcoin?
Where Did It All Begin?
What Is A Cryptocurrency?
Why Is It Called Bitcoin? Why Can’t I Capitalize The C?
Chapter 2
What Is A Blockchain?
What’s The Big Deal?
The Problem Of Double-Spending
What Is It Though, Is There A Big Computer Snake Somewhere?
Couldn’t You Just Fake The Chain?
Can A Blockchain Only Be Used To Track Financial Transactions?
Chapter 3
How Can Something Be A Currency If It’s Not Physical?
What Makes Something A Currency?
Okay, I Get That. Where Does The Deflation Come In?
How Can You Just, “Print Money?”
What Happens To Your Money If Everyone Withdraws All Of Their
Money At Once?
Okay, But Again, How Can It Be A Currency, If It’s Not Physical?
Chapter 4
Which Bitcoin Is The Real Bitcoin?
Bitcoin Is Open Source And Decentralized
What Is A Fork?
Bitcoin Cash And The Segwit Debacle
 SegWit
Bitcoin Cash
Pause.
Ship Of Theseus
Back To Bitcoin Cash v. Bitcoin
My Take On BCH vs. BTC
Chapter 5
What Is The Lightning Network?
How Does It Work?
Is This Safe?
Chapter 6
Is This Even Legal?
Is Bitcoin Useful For Illegal Activities?
Is Bitcoin Anonymous?
Can Bitcoin Be Regulated?
What About Taxes? Do You Have To Pay Taxes On It?
Is The Consumer Protected?
Chapter 7
Alright, I’m Sold. How Do I Get Some?
Mining Bitcoin
Buying Bitcoin On Exchanges
Making Transactions
Trading, Online Gambling, And Ref Links
Contributing To The Community
Chapter 8
What’s Next?
What’s the Difference Between A Coin And A Token?
Tokenize Everything
Self Governance
Real World Applications
 Closing Thoughts
References
 Introduction

​ At the time of me writing this, Bitcoin is in a bit of a “recession.” We are a

couple of months after its meteoric run up to 20,000 USD per coin, but
currently, the public doesn’t care about Bitcoin. The average person, if they
even know about Bitcoin at all, thinks it was a fad. They believe that by using
or investing in Bitcoin, you’re taking a massive risk because everyone that
they know that also invested has lost thousands of dollars. Here’s the thing,
they’re not (entirely) wrong.
What did you think, I was going to pull the wool over your eyes?
Bitcoin--and cryptocurrencies more broadly--are incredibly risky assets. I am
not a snake oil salesman here to make you invest your child’s college fund
into Bitcoin. This is an emerging technology, and with that comes a lot of
risk.
But guess what? We have only seen the beginning.
I am writing this book because I am confident that this is not the end of
Bitcoin. I am writing this book so that you as the reader will be able to
understand what the “big deal” about Bitcoin is. So that you can impress your
partner, family, and friends with your understanding of the topic.
By the time you finish reading this book, you will understand the significance
of Bitcoin, its purpose, and have a general understanding of the blockchain
and other “altcoins” (cryptocurrencies other than Bitcoin). This book will be
written in layman’s terms, but I will not sacrifice the quality of information.
You can be confident that when you’re finished reading it, you will have a
strong working knowledge of the technologies at hand, and that you will not
be fooled by any charlatan trying to sell you a scam or condescend to you due
to their supposedly superior intelligence.
 Chapter 1
What Is Bitcoin?
Direct Answer : Bitcoin is a digital currency based around cryptographic
algorithms.
The Bitcoin whitepaper 1 —the document that introduced Bitcoin to the
world—written by “Satoshi Nakamoto,” defines Bitcoin as a “peer-to-peer
electronic cash system.” There are debates as to who Satoshi Nakamoto is,
and whether it’s even one person, but all of that can be discussed later.
Underneath the hood, Bitcoin is simply a system of rules that, by using
cryptography , allow for two users to transfer value without a third party
authority. Basically, just like email allows for two people to send messages
directly to one another, Bitcoin allows two parties to send money directly to
one another.
That can’t be all there is to it though, right? Something that simple wouldn’t
generate the kind of fervor that Bitcoin has created. It wouldn’t make your
coworker talk about it endlessly, right? There’s truthfully so much that we
need to cover, so I’m just going to start from the top.

Where Did It All Begin?

Depending on how old you are, you may remember the late 90s dotcom
boom. Around this time, an application named Napster showed up. This
application allowed--or maybe allows, not sure if it’s still around--users to
put music online that other users could download quickly, but also...illegally.
The website immediately faced a massive backlash and was eventually
shutdown (to our dismay). As time went on, alternative applications such as
Kazaa, Limewire, Bittorrent, etc. were created. All of these are what we refer
to now as peer-to-peer networks .
If you don’t know what any of these are, don’t worry too much about it. Just
know that this is where our blockchain story begins.
While you might have had a great time jamming out to AFI with your
obnoxious haircut that demonstrated just how “non-conformist” you were,
inadvertently you were also participating in a decentralized network. What
makes decentralized technologies so interesting is that they do not have to be
run through a trusted authority.
Historically, computers connected from client to server. There was some
massive warehouse (in a place with reasonably priced real estate costs) that
was filled wall-to-wall with computers. These servers held all of the
information that you would download onto your computer. Similarly, you
could upload information from your computer to these servers.
When Napster was created, Sean Parker popularized the peer-to-peer
network. Instead of going through a centralized authority like a record
company, users could upload music to the network and other users could then
download the music to their computers for free. Each computer held a little
bit of the data in the network, providing a little bit of the content that made
the network work.
While the peer-to-peer technological advancement was negatively received
by bands like Metallica (still the least-metal thing they’ve ever done… well,
excluding Load and Reload), it also allowed for Radiohead to receive
worldwide acclaim and reach the Billboard 200 for the first time with their
album Kid A.
Bitcoin is a peer-to-peer electronic cash system
Now that we have addressed the peer-to-peer portion, let’s talk about a “cash
system.”
I can see you now, rolling your eyes at me. Tasheme, I know what a cash
system is. Yeah, I know, it should be intuitive, but there are some underlying
rules, that are rarely considered which we need to talk about.
For something to be considered a cash system, it is required to fulfill three
main criteria. It needs to be a store of value , it needs to be a unit of account ,
and finally it needs to be a medium of exchange .
A good store of value is anything that can maintain its wealth without
depreciating. Gold is a good store of value because it maintains its worth over
time. Avocados are a horrible store of value because they can go bad fairly
quickly.
If a nation-state’s currency is a poor store of value, that would discourage
people from using their currency. This would limit trade and it would
generally compromise people’s willingness to participate in the economy. To
the right is an image of 1923 Germany, when the Republic of Weimar
experienced hyperinflation. Wheelbarrows of cash were required to buy
everyday items. Not good.
A proper unit of account makes sense of prices, costs, and profits. If your
currency cannot be used to measure value, then it is functionally worthless.
How would anyone use it? That’s like when you’re playing with children and
they’re saying their toy is worth 2 doodads, but each doodad is worth 5
whatchamacallits, however each whatchamacallit can trade one-for-one for a
toy. It’s incoherent.
Lastly, a currency needs to be a medium of exchange. The currency is an
agreed upon standard by all parties and it is used to facilitate trade of goods
and services. We are likely very familiar with this in practice.
See that wasn’t too bad. Now that we all have an understanding about what I
mean when I say cash system (or currency), let’s proceed.

What Is A Cryptocurrency?
Bitcoin is the first cryptocurrency. There is a complicated system of rules
written by Jan Lansky that lists six different features of a cryptocurrency, but
for the layman all you really need to know is it’s a currency that is secured
via cryptography. Simple.
The first thing we need to understand to get to the heart of what a
cryptocurrency is would be cryptography (the “crypto” in cryptocurrency).
You don’t need to be able to “do” cryptography, but you should know what it
is.
If you’re like me, you might wonder what keeps your data safe in your
computer, why you can’t access other people’s bank accounts, why other
people can’t access your bank account, etc. If you’re not like me and don’t
wonder about these things, I’m going to tell you anyway (ha ha).
Cryptography is the practice of techniques to secure information. Let’s pack
up, time to go home.
Clearly there’s more to it than that.
Have you ever sent a “secret message” to your friend in history class? Your
teacher was blabbing on about something boring that happened during the
Byzantine Empire that you don’t care about because Casey and Taraji are
having a secret steamy romance their parents don’t approve of. I can’t say
this happened to me because I was the nerd who actually paid attention in
history class, but I believe that’s happened to most of you to some degree or
another.
In order to keep this message a secret, you decided to shift all the letters over
by five because it makes the message look like garbled nonsense and the
person will likely just throw it out if they run into it. This is cryptography,
and that was called a Caesar Cipher. In the 21st century we have significantly
more advanced methods of securing messages than that, but the fundamentals
are still the same.
Let’s say Alice and Bob want to send a message to one another, and they
don’t want a third party to read the message. Alice would “encode” the
message-- or plaintext— with cryptography. There would be some rule the
other person would have to follow in order to turn the jumbled alphabet soup
—or cipher— back into a legible “plaintext” message. Still with me? That
rule, is called the algorithm .
It wouldn’t take a particularly intelligent person (especially if they’re armed
with a computer) to break the cryptographic scheme I used in my Caesar
Cipher example. If you just had to know about the steamy romance between
Casey and Taraji you could figure out what that message said. There are only
26 letters in the alphabet, and if you look at the message there’s a very good
chance that at least one of the words ends with the letter “s,” or that there is a
one letter word “I” or “a,” that there are three letter words like “the,” “and,”
or “for.” With any one of those vulnerabilities you could try all 26 possible
shifts of your letters and figure out what the common shift number is. If you
are using a computer, you could just reprint the message 26 different times
with each of the shifts...and you can do it in less than a second .
Out of necessity, we came up with more complicated ciphers. These usually
involve a “key.” In your day-to-day life, you should be familiar with this. The
password to your email account is a “key,” your ATM PIN, your fingerprint,
etc. All of these are private keys. The assumption is, only you or a trusted
party are privy to the private key, and because of that, this can be used as
your personal entry point to the secured information. Obviously, even this
can create issues, but we will ignore those for now.
Back to Bitcoin.
Bitcoin uses modern cryptography to secure transactions.

Why Is It Called Bitcoin? Why Can’t I Capitalize The

C?
To bring it all together, the “bit” refers to the peer-to-peer portion and “coin”
to the currency aspect. Bitcoin is a portmanteau (pretentious way of saying
“compound word,” makes you seem super cool, and every once in a while
it’ll win you a trivia game) of those two. You can’t capitalize the “C” because
it makes you look like you don’t know what you’re talking about. Lucky for
you, at this point in the book you know more than at least 50% of people on
the planet who exist at the time of me writing this.
As far as capitalizing the “B,” there’s a bit of contention. From what I can
tell, you capitalize the B when you’re referring to Bitcoin as an entity, and
it’s lowercase when you’re talking about it as a currency--like US Dollars
versus eight dollars.
 Chapter 2
What Is A Blockchain?
Direct Answer: A decentralized online ledger that keeps record of all
‘transactions.’
Over the course of this chapter, we will cover the basics of blockchain and
briefly touch on why I put transactions in quotations.

What’s The Big Deal?

Something that is rarely considered in our day-to-day financial life is the
inability to spend money twice. We go to the store, and the store clerk asks us
if we want to pay for our black licorice in cash or credit (oh, is that just me?),
we choose our form of tender, the transaction is “approved” then we go about
our business. If we are using fiat currency— currency that a government has
declared to be legal tender, but is not backed by a physical commodity (e.g.
dollar bills as opposed to silver shekels)--the act of handing the money to the
other person acts as the transaction, and double-spending is not possible due
to you no longer having possession. In the case of credit/debit, while not
tangible, the same process is occurring; however, it’s your bank transfering
the fiat currency from their reserves to the bank of the other person. In both
cases, there is a physical transfer of wealth that occurs at some point which
guards against double-spending. In fact, it’s not even something you would
consider (unless you’re the kind of person that cheats at Monopoly by
pocketing money you gave to another player).
In both of those scenarios, the transaction is guarded from double-spending
either by the laws of physics, or by third-party validation. In this case, VISA
or whatever other payment service you’re using to secure the transaction,
sends the data to your bank, who verifies the validity of the transaction and
availability of funds. Your bank, who is in control of your monetary records,
would transfer money from your account to the other party’s. This transaction
would now be added to both your account and their account.
All of this seems exceedingly obvious Tasheme, why have you spent a couple
of hundred words on this? Great question.
In the cash example, the transaction happens without any form of
verification. Sure, the shop owner could take out a counterfeit marker and
double check the validity of the currency, but that is a “trustless” act. The
shop owner can rely on themselves and the quality of the tools available to
them to determine whether the transaction is valid. In the credit/debit
example, VISA, and potentially two banks need to be involved. They need to
verify the transactions, update the ledgers—the record of transactions—
associated with your accounts, then transfer the money as your proxy. This
activity involves trust.
Here’s the thing, trust can sometimes bite you.
Cash is king because cash works freely, and requires no third party
verification. You feel secure in your transaction. That libertarian on your
block who yells about the Fed and rising interest rates is perfectly okay with
cash, but likely feels uneasy when it comes to credit/debit transactions.
The blockchain eliminates the need for third party verification.
Just like in the previous chapter where I explained peer-to-peer, the
blockchain creates a peer-to-peer ledger of transactions, that all members of
the system can verify—without trusting a third party. In effect, this turns your
Bitcoin transaction into more of a cash or gold transaction. This is what is so
revolutionary.

The Problem Of Double-Spending

I glossed over the double-spending problem above, but I think this is a very
important aspect of Bitcoin. If you tire of technical details, you aren’t losing
too much by skipping this section.
Something that is unique to cryptocurrencies, is that it’s made entirely of
data. That means, after a transaction has been processed, one of the parties—
or a separate one—can duplicate the coin, and spend twice as much. Given
that it is digital, this counterfeited double spent coin, is indistinguishable
from the original (This, is actually the problem of media/software piracy in a
nutshell as well. Maybe there needs to be a blockchain for digital media? ).
To guard against this, the blockchain was invented.
The Bitcoin blockchain runs on what is known as a “proof of work”
algorithm. All this means in essence is that there are a bunch of computers,
mining coins. These miners use a ton of computing power to verify the
validity of each block . Still with me? There’s no one with a hat on, it’s really
not even a ton of people, usually it’s a ton of computers in a really cold room.
Every time a transaction is made, it’s added to a new block. At this point it is
unverified. Now, this is where the complicated comes in. Brace yourself.
When it is added to the block, it is put through a hash. This is computer nerd
speak for really complicated word scramble that is virtually impossible to
undo. This word scramble is not random—if you put something in that’s even
slightly different you’ll get a completely different result.
On each block, the transaction’s hash is added to it. All of the miners then
crunch numbers to determine if this chain of hashes is correct (i.e. this
“block” - “chain” ). If this chain is correct, then the block is verified and we
keep it moving.
An attacker would target this process if they wanted to double spend. At that
point, the hacker has to get a fake transaction onto the chain. This is
exceedingly difficult. You have to get to the appropriate block, hash your
transaction, put it in its appropriate position, while maintaining the integrity
of all previous parts of the chain, and all of this has to be done before a new
block gets made. If it does get made, you also have to change the new block,
and so on and so forth. While theoretically possible, it is very very difficult.
In history, there have been several attempts to forge blockchains, or to send a
fake copy to the seller, and a different copy to the rest of the blockchain. All
of this has been met with very limited success. The easiest thing to do is to
just take advantage of people not securing their information correctly, by
stealing their coins.

What Is It Though, Is There A Big Computer Snake

Somewhere?
The blockchain is really just a bunch of spreadsheets connected to one other.
Seriously. Don’t let any charlatans trick you out of your money because of
their hocus pocus sleight of hand “once in a lifetime” investment trickery. It
is just a system of connected computers that compares chains— record of
verified transactions—to determine which is the longest. The longest chain is
presumed to be the real chain.
While I am partially downplaying the blockchain’s significance, it is done to
highlight the lack of mystery involved in these technologies. Bitcoin isn’t
magic, it’s “basic” computer algorithms your 20 year old son or best friend in
college can perform. The blockchain is a natural consequence of other peer-
to-peer networks that have dramatically changed the landscape of our world
over the past couple of decades.
The revolutionary part is the creative implementation of these technologies
combined with the economic incentive to propagate the system. The “once in
a lifetime” opportunity present is your presence at the beginning of the
blockchain revolution. The blockchain itself is not the opportunity, but the
consequences of a decentralized world.
Anyone can build a printing press (well most people, if you’re given detailed
instructions). When the printing press was created, though they were
expensive, the true value was in how easily one could reproduce information.
Eventually, presses were commonplace, but society was transformed.
But I digress.

Couldn’t You Just Fake The Chain?

Yes. This would be called a 51% attack
Put simply, a 51% attack is when someone, let’s call them the adversary, is
attempting to create their own version of the chain. If the adversary owns
51% of the supply, then they would be exploiting the underlying mechanism
used for consensus. They have the majority, thus their version of the chain is
the correct one.
Having full control of the chain allows for the adversary to create new blocks
given directly to them, it allows them forge transactions, or whatever else
they can think of.
There have been a few successful 51% attacks. Most recent to the time of me
writing this, Verge (XVG) had a successful 51% attack waged against them.
The attacker had full control of the network for quite sometime and the coin
has not recovered from the bad publicity since (This case is especially
damning since the coin claims to be a “secure and private” coin). Lucky for
Verge, most people don’t keep up with coin news during a bear market so
they were able to retain a $450 million valuation.
Now, as I said before, pulling off a 51% attack is incredibly difficult. In fact,
as time goes on, the likelihood that a 51% attack is even possible drops
considerably.
For smaller altcoins like Verge, it’s possible because each coin has a
relatively small value, and you simply need to patiently accumulate the
circulating supply. When it comes to coins like Bitcoin, where over 80% of
the supply is circulating, and each coin is worth thousands, plus there’s high
liquidity, i.e. large number of buyers/sellers, it becomes exceedingly difficult
to control over half the supply.
Additionally, changing upcoming blocks on the Bitcoin network could have
catastrophic results, causing the price to crash which would negatively impact
the value of the network. This of course would be against the attackers self
interest, so it’s thought that coins such as Bitcoin might be resistant to this
type of attack--though it is theoretically possible.

Can A Blockchain Only Be Used To Track Financial

Transactions?
In theory, it could be used to keep track of anything of value. The most
obvious example I can think of would be identity verification.
If you want to get fantastical with me for a second, keep reading, but if
you’re more of a nuts and bolts, pragmatic type of thinker, the question has
already been answered.
The purpose of the blockchain is to verify transactions without the need of a
third-party. This, until now, has typically meant the verification of monetary
transactions. Did you notice I had to use a qualifier? Monetary transactions. In
theory, any transaction, monetary or otherwise can be used/verified on the
blockchain.
This opens up a brand new world.
Seriously.
Think about the world prior to the internet. Things ran well, but it took far
longer for information to travel. People had to rely on expensive long-
distance phone calls to speak to people around the planet. Everything was
separate.
The internet allowed for people and things to be connected. It created
networks, and as the internet has matured, it has permeated all aspects of our
lives. The divide between online and offline has dissolved; for better or for
worse.
Technological and social networks are at the core of our society now and,
currently, they are ran based on attention. Attention is the backing to our
network economy. You have value on YouTube if you have viewers. You
have value on Instagram if you have millions of followers and tons of “likes.”
Initially, these likes and follows had power, but more of an abstract type of
power. People would mobilize their follower-base to perform different tasks--
like boycott--but that’s all they could do. In the present, companies have been
able to monetize and leverage this power by paying social influencers to
advertise their products, but that’s kind of like the old paradigm trying to stay
relevant.
Blockchain is the first step into the new internet paradigm.
That sounded a lot more “buzzword” than I would have hoped, but it’s true.
With decentralized verification of transactions, your instagram like can and
will have true economic power. Each like can award cryptocurrency.
But let’s step outside of money itself. How else can this be applied?
Think about contracts. As of now, you need a lawyer or a notary to
substantiate the contract. With the blockchain, you no longer need that. A
smart contract can be drawn up, and if you violate the conditions of the
contract, the consequence will execute. Additionally, because there is no
third-party, just cryptographically secure computer code, the contract will
execute its conditions no matter what .
Let’s get a little bit kooky, and let’s think about the future of autonomous
cars. As of right now, we have drivers. You call an Uber, and your driver
arrives, you pay the driver, and voila, you’re off to your location. When cars
become autonomous (which we already have the technology for), your car
can be set to “ride share” and it will go around picking up people and taking
them to their destination--without you present. Who will make sure your
money gets to you, since it is your car after all? Well, your car will.
Let’s take this one step further. Community-owned cars. We get to the point
where it’s inconvenient to own your own car. You live in the City and parking
is limited? Well, your City has autonomous cars that drive around, and
operate themselves. They initiate transactions for themselves, then voila!
There are potentially unlimited applications that exist, but we’re in the
infancy of the blockchain so it’s easy to be myopic.
The blockchain further entangles the internet with the real world.
 Chapter 3
How Can Something Be A Currency If It’s Not
Physical?
Direct Answer: supply and demand
This is a question I commonly come up against, and I believe this gets down
to the crux of what Bitcoin really is.
To give you a good answer to this question, I have to take the scenic root and
explain to you the other reason Bitcoin was created in the first place. On the
one hand, Bitcoin was created in order to remove the middle-man and allow
for trustless transactions without the need for any corporation or government.
On the other hand, Bitcoin was created as a response to fiat currency.
The founder(s) of Bitcoin, Satoshi Nakamoto, decided to create Bitcoin
because he felt the central banks could not be trusted to not debase the
currency. Here’s a direct quote:
The root problem with conventional currency is all the trust that's required to make it work. The
central bank must be trusted not to debase the currency, but the history of fiat currencies is full of
breaches of that trust.
​ ​ -Satoshi Nakamoto ( Bitcoin Open Source Implementation Of P2P Currency)
Pretty cut and dry.
As a response, he chose to make a trustless deflationary currency. We’ve
covered, the trustless part, but let’s dive into what makes something a
deflationary currency.

What Makes Something A Currency?

As we said before, for something to be a currency, it needs to satisfy a few
key criteria. It has to be a store of value , be a unit of account , and a medium of
exchange . Additionally, there are several functional definitions it need to
abide by to be a useful currency. Those being:

1. Durability
 2. Portability
3. Divisibility
4. Uniformity
5. Limited Supply
6. Acceptability

We are pretty familiar with the first few criteria. Money has no purpose if it’s
not a store of value. Due to it having value, it as a consequence becomes a
“unit of account.” It serves as a meter for the value of economic transactions.
Pretty straightforward. Lastly, since it “stores value” and can be used to
account for the worth of an economic exchange it, as another consequence,
can be exchanged for goods or services. The money is inherently valuable, it
has a defined value, and as a consequence it can be given to another as a
medium of exchange.
The other criteria are where Bitcoin and other cryptocurrencies show their
true value. They are durable because they’re simply digital signals that
traverse the internet. They are exponentially more portable than fiat currency
is. In fact, they don’t need to be carried at all. Most cryptocurrencies are
divisible. Bitcoin in particular can be divided infinitely, but is traditionally
divided up to 8 decimal places. Each unit is referred to as 1 satoshi --in honor
of the Bitcoin creator. Every Bitcoin is the same as any other, so it is entirely
uniform. There will only ever by 21 million Bitcoin in existence, so it has a
severely limited supply. Lastly, it is accepted globally. Bitcoin has no
borders.
In essence, Bitcoin in particular, but cryptocurrencies more generally, are
more efficient than standard currencies.

Okay, I Get That. Where Does The Deflation Come In?

The US Dollar, and most forms of currency you may be familiar with, are
inflationary currencies. There are a couple of agreed upon reasons for
inflation, but the gist behind inflation is simply that, over time, the supply of
the currency increases and consequently the price of everything increases as
well. This is due to the fact that no individual amount of currency is as
valuable as it had previously been.
Essentially, we’ve diluted the value of each individual denomination of
currency.
The part that was truly reprehensible to Satoshi was that the central banks are
the ones that increase the currency supply. Someone at the Federal Reserve,
does some calculations, and they determine how much more money needs to
be printed in order for all of the math to “balance itself out.”
After the Financial Crisis of 2008, our collective trust in the system
dissipated, and Satoshi began creating Bitcoin.
Deflation is the opposite of inflation.
The supply of the currency is limited and as a consequence, each coin retains
its value. In fact, as the currency is used more, the value of each
denomination of the currency increases. Every time someone loses a
denomination of that currency, the value of the remaining currency increases.
For holders of the currency, everything begins to get cheaper.
 Source: bitcointalk.org, user: whitslack

How Can You Just, “Print Money?”

This is what frustrates people.
There are several mechanisms that allow for central banks to simply “print
money,” but the most crucial of which is called fractional reserve banking.
When you give your money to your bank, they do not just house the money
safely inside the bank and all is hunky dory. The bank would never make any
money this way. What happens instead is, the bank keeps a fraction of the
money that you have deposited in its reserves. The rest of the money is loaned
out to people for interest. The bank then collects revenue from the interest
from these loans.
An interesting consequence of fractional reserve banking is that there is now
more money in circulation than should otherwise exist.
If you put $100 into the bank and the bank decides to retain 10% of that $100
— or $10, then they are now free to lend $90. On paper, that puts $190 in
circulation despite there only being a true $100 in existence. The remaining
$90, though treated as real money, has in fact zero real added value, all that
has happened is the overall value of each denomination of currency has gone
down.
Sketchy, huh?
Note: There are some economic and mathematically sound reasons that could
be used to validate the use of fractional reserve banking, but it is important
that you understand Bitcoin’s underlying ethos.

What Happens To Your Money If Everyone

Withdraws All Of Their Money At Once?
Welp, you get the 2008 Financial Crisis.
The banks obviously don’t have that money, so the banks insure up to
$250,000 of your dollars with the FDIC or some other regulatory company.
Even with that, in major financial crises, there isn’t enough money to go
around. Typically, the government--understanding how fragile the system is--
will often bail the banks out in order to prevent financial collapse.

Okay But, Again, How Can It Be A Currency, If It’s

Not Physical?
In the modern era, you likely work with digitized currency in your day-to-day
life far more than with anything else. You likely swipe your debit or credit
card or use some other digitized payment service more often than not.
Prior to the modern era, we used bills or monetary notes to act in proxy of
precious metals. The coins were far too heavy, so it simply became more
efficient to use bank notes. The notes have a denomination on them, and they
act as legal tender in place of explicitly transferring gold or silver--which
were quite cumbersome.
Somewhere along the line, many governments actually have detached the
notes from their physical backing. Remember our conversation about “fiat
currency?”
What’s funny is, when you swipe your debit card, you’re dealing with an
abstraction of an abstraction of value. You can probably see why Satoshi--and
many others--are a bit skeptical.
Bitcoin is backed by energy expenditure. If you have veritable proof that
digital work had occurred, you can exploit the underpinnings of capital--
which places monetary value on labor, and grant each coin the intrinsic value
of that work. If you don’t view that as concrete enough, the limited nature of
energy, and the work done to generate and use it, acts as another more
tangible financial backing.

Where Can I Use Bitcoin?

At the moment, this is one of Bitcoin’s pitfalls. Satoshi envisioned Bitcoin to
be a peer-to-peer cash system, and yet, I can’t use Bitcoin at the grocery
store--at least not in most countries.
There are two major schools of thought when it comes to the path that
Bitcoin will take towards mainstream acceptance. The first path, is for
Bitcoin to follow the standard technological adoption curve. Where we stand
right now, Bitcoin is a relatively new technology and it’s lack of acceptability
is mainly due to the hesitancy that masses of people have towards adopting
new technologies. This camp believes that once it’s convenient for businesses
and consumers to implement Bitcoin transactions, then they will do so. There
are a few ways that this can occur. The method that is briefly outlined in the
bitcoin whitepaper would be after Bitcoin’s price has inflated, then
transferring wealth on the blockchain would function like the transfer of
wealth in any other form. The volatility we experience moving from a value
of 5,000 USD to 6,000 USD is an increase in 20%. This type of move is
monumental and would completely disrupt businesses. However, the move
from 1,000,000 USD to 1,001,000 USD is only 1%. This is the sort of move
we experience in our fiat currencies, and we hardly notice.
The second, and more controversial camp, is called hyperbitcoinization .
Essentially, as the US Dollar--or substitute your fiat currency of choice--
collapses, Bitcoin’s value will be seen. When this occurs, Bitcoin will
become the global currency, and its necessity will fuel it’s global adoption.
At this point, each satoshi will be worth about as much as 1 USD and we will
begin our transition into a global society. Depending on when you read this,
their claim will either be hilarious or the obvious course of history.
 Chapter 4
Which Bitcoin Is The Real Bitcoin?
Direct Answer: It’s complicated. I truthfully can’t give you a direct answer.
There are quite a few cryptocurrencies out there that share the Bitcoin
moniker. Whether it’s Bitcoin Dark, Bitcoin Gold, Bitcoin God, or most
notably Bitcoin Cash. It can become easy to get lost in the myriad of Bitcoin-
like coins. Which of these is the real Bitcoin?
For the most part, you can cross most Bitcoin-like coins off of the list if they
were made prior to August 1st, 2017. It’s very unlikely that even the coins
themselves would argue much with you. However, there is a very heated
debate in the cryptosphere about the validity of two coins in particular:
Bitcoin and Bitcoin Cash.
I have done my best to be as straightforward with you as possible, and I’m
going to let you know right now, that this is easily going to be the most
controversial chapter of this entire book.
The community has been divided on this issue for quite some time, and it is
probably the most emotionally laden topic in the entire space. I am going to
try and provide some insight on the matter, but before anything I need to
explain a few things.

Bitcoin Is Open Source And Decentralized

Several attempts have been made prior to Bitcoin to create an e-currency.
None of them worked. Satoshi believed that it was due to the centralized
nature of these currencies.
“Governments are good at cutting off the heads of a centrally controlled
networks like Napster, but pure P2P networks like Gnutella and Tor seem to
be holding their own. ”
​ ​ -Satoshi Nakamoto ( Re: Bitcoin P2P e-cash paper)
It would make sense. He’s creating a currency that would effectively
undermine the dominance of national currencies. It’s important for the
currency to not be silenced otherwise it would not be able to grow.
In order to properly implement this protocol, he also made the Bitcoin code
open source. Anyone could participate in the creation of Bitcoin. Anyone can
run Bitcoin. By making Bitcoin open source, it is truly decentralized, and
thus it is unstoppable
...however, by making Bitcoin an open source project, you also make it
vulnerable to forks.

What Is A Fork?
In any open source project, developers need to be able to add to the existing
project; however, if every developer started writing on the master, then the
project would be chaos and it wouldn’t get very far. In order to rectify this,
developers can “fork” the repository. The forked version then splits off from
the original version, like a fork in the road.
Typically speaking, the developer would then update the code on his version,
and “push” updates onto the original version. This process would then merge
the two separate forks into one program. However, there are cases when the
new version and the old version are incompatible, and as a consequence the
two projects split off from one another and go in two different directions.
With Bitcoin, there have been many forks, most of which have been soft forks.
A soft fork is usually some update to the protocol and previously valid blocks
are now made invalid. This change is backwards compatible, i.e. older nodes
can implement this change without having to upgrade.
This decision regarding soft forks are left up to the community, and when a
majority of the nodes agree, they fork is implemented. Remember, if the
majority of the nodes want to go in a different direction, they have control
over the “longest chain.”
Below is a diagram about how a soft fork works.
 Image: Investopedia
Moving from left-to-right, the chain exists with non-updated nodes. These
nodes follow the “old rules” of the system. That is, they are operating prior to
any change. After the second block, a soft fork has been implemented. The
shaded box are those nodes that were previously valid, but now violate the
new rule(s) that has been added to the system.
As a consequence, those nodes are no longer a part of the “longest chain.”
They are now obsolete or invalid.
Below the invalid nodes are those nodes that satisfy the old and new rules.
No upgrade was necessary, they are simply the next link in the chain. The
nodes now continue on as if nothing happened, connecting to the next valid
node.
To avoid confusion, the furthest block to the right labelled “old rules” refers
to all rules prior to itself. From the perspective of that block, the new upgrade
is considered an “old rule.”

In contrast, there exists what is known as a hard fork (I bet you didn’t see that
coming).
Hard forks are quite different, and they are usually due to a fundamental
disagreement about the direction a coin ought to take. The most notable hard
fork is Bitcoin Cash--trust me, I will talk about this soon.
Essentially, the community decides to implement a new change that will
fundamentally alter all blocks that will exist going forward. If all members of
the community agree, then great, no issues, and the old fork simply dies.
However, since we are human, we can rarely agree on anything.
If there is a lack of consensus, then at a specified block, the codebase splits,
one of which implements the new rules, and the other implements the old
rules. This leaves you with two separate coins that have a shared history.
Typically, the holders of the coin pre-hard fork are rewarded with both coins
in what is called a 1:1 airdrop . A nice reward to the community for holding
through the ruckus, but also as a means to create free promotion for the new
coin. What works better for a promotion than free money?
Below is a diagram that illustrates a hard fork.

Image: Investopedia
As in the last diagram, the coin has a singular shared blockchain until we
reach the third node where the codebase forks. Now, you have two separate
coins, with two distinct blockchains. It is important to note that this type of
fork is not backwards compatible. The two chains are diverging and creating
two separate entities that will only become more and more dissimilar over
time.

Bitcoin Cash And The Segwit Debacle

Alright, now I’ve brought us to the most contentious issue in the
cryptosphere. I will first provide a brief background on the issue, then I will
present both sides of the debacle, and finally I will provide my opinion. I
want to make this abundantly clear , I have not been paid by any party. I
have no affiliation with any party. I am simply a member of the crypto
community that doesn’t feel any strong ties either way, and I feel like I can
pretty objectively speak on the matter given my expertise in the space.
Now that the disclaimer is over, let’s get down to it.

SegWit
To begin, Bitcoin was beginning to experience “congestion.” The developers
as well as many in the community noticed that this would become a major
problem as time went on. If the blocks are overly congested, it will take a
long time for transactions to be confirmed on the blockchain, and the dream
of Bitcoin competing with payment systems such as VISA would be over.
Great, the community identified the problem, now they just had to agree on a
solution.
Two solutions were proposed. Bitcoin Unlimited and SegWit.
Bitcoin Unlimited’s idea was simple. Completely remove the block size
limitation on Bitcoin. The purpose of the 1MB limit on each block was
simply to guard against DDoS attacks--or denial of service attacks (it’s really
not important to have a strong grasp on what that means, just know it’s
annoying hackers filling the blocks with junk).
The miners loved this idea. From their perspective it was great, if you have
no cap on how large blocks can be, then it will require that much more effort
to mine each block and consequently, each block rewards the miners more.
Perfect!
However, the community figured that this would centralize mining. If blocks
get too large, then only the largest mining pools--or groups of miners--could
mine blocks; the little guy would be completely SoL.
Ultimately, the community shied away from this idea.
The other proposal was SegWit. Short for “Segregated Witness,” the
developers figured they could kill two birds with one stone. In every Bitcoin
transaction, there’s a cryptographic signature that essentially validates the
transaction; however, up until this point, the signature did not contain all of
the data about the transaction, so it was theoretically possible to alter the
signature in such a way that you can sneak extra Bitcoin into the transaction.
This is known as transaction malleability.
The developers, using some serious programming voodoo, decided to
frankenstein the transaction process, “segregating” part of the transaction
information, and taking it off the blockchain. This would allow for them to
put more transactions into each block--since a piece of the transaction data
has been removed--and this new feature can be exploited to solve the
malleability problem.
Though this solution ended up being implemented, many people thought this
was simply a temporary solution to the problem, and that the Bitcoin
Unlimited approach was better.
In order to satisfy everyone, a compromise was made. This protocol, named
SegWit2x, both stored some of the transaction data outside of the blockchain,
and increased the block size to 2MB. Ultimately, 95% of miners agreed to the
proposal, and the changed was implemented.
...here is where the controversy begins.

Bitcoin Cash
Some people were not too keen on this SegWit2x proposal. Many prominent
figures in the cryptosphere were very vocal about their opposition.
You see, the issue they had was...well, at the risk of sounding like a meme,
that SegWit2x went against “Satoshi’s true vision.”
Limiting the block size will eventually create congestion in the Bitcoin
network. Ultimately, the price for transactions will increase to such a point
that micropayments will be infeasible. The idea that you could go to the store
and buy a $3 coffee would be completely off the table.
Thus, at the Future of Bitcoin Conference, a developer by the name of
Amaury Séchet proposed Bitcoin ABC, the first version of what would later
be known as Bitcoin Cash.
Sechet and his team of developers decided to increase the block size limit to
8MB, which is such a drastic change from the Bitcoin protocol that a hard
fork was required. Additionally, the team made it clear they had no real
aversion to increasing the blocks further down the road. To them, the block
size was simply a means to an end. If Bitcoin cannot be used as a means of
exchange due to block congestion, you can indefinitely increase block size.
Eventually, computing power will match.
Due to its consistently low transaction fees and general business focused
philosophy, Bitcoin Cash was an immediate success. Within its first day of
existence, it jumped to the third largest market cap.

“Bitcoin’s usefulness as a store of value comes as a secondary effect from its

usefulness as a medium of exchange. If you destroy the medium of exchange,
you destroy the store of value.”
-Roger K. Ver CEO of Bitcoin.com
Bitcoin Cash gets a lot of hate.
The Bitcoin community believes that it simply is profiting off of the Bitcoin
moniker and that many of its marketing techniques are being used to deceive
newcomers. For instance, Bitcoin.com is owned by Roger Ver, who is one of
the largest Bitcoin Cash supporters. Since Bitcoin.com is ultimately about
Bitcoin Cash (henceforth referred to as BCH), many believe that it is clearly
fraudulent enterprise aiming to deceive.
In response, Roger Ver as well as Jihan Wu have argued by saying that
“Bitcoin Cash IS the real Bitcoin.”

Pause.
We have had the opportunity to speak about the essence of Bitcoin. We have
talked about the Bitcoin whitepaper and we have talked about forks. Let’s
take a moment to rationally analyze this situation before we continue.
Bitcoin Cash is the byproduct of a hard fork.
That’s it, we can wrap up here. BCH is clearly not the original. Look it even
has a different name!
Well, not quite.
Let’s think about the origin of BCH. The community decided to implement a
change. S2x was designed to change the Bitcoin protocol. It was a hard fork
in itself. Let me repeat. S2x was a hard fork from the old Bitcoin protocol.
We have seen the chart. That means there are now two separate blockchains,
but prior to the hard fork, the two chains have the exact same history.
Well, here’s where the funny business starts.
Technically speaking, BCH implemented its hard fork on August 1st, 2017.
That means up until August 1st, 2017, BCH and BTC had the exact same
chain. They were the same entity. Let’s call the pre-hardfork chain, chain A.
Now, when BCH created its split, BCH became a spinoff of chain A. This
spinoff has one difference, instead of having a cap of 1MB on the blocks,
BCH has a cap of 8MB. As far as changes are concerned, it’s significant, but
in practice, the coin is effectively the same. The blocks are too large to be
filled easily, so BCH operates pretty much identical to chain A.
In fact, if we double back to the section on SegWit, BCH is much like the
Bitcoin Unlimited proposed solution.
Okay, so now on August 24th, the standard Segwit soft fork occurred, thus
old nodes that did not follow the new rules were invalidated, and the chain
continues on with the backwards compatible update. This new post SegWit
chain is now going to be called chain B. It is fundamentally different from
the original chain A. Bitcoin acts differently after this implementation. If
you remember, SegWit changes the way in which transactions are
implemented and stored in the block. There is a far larger change occurring
here than with the BCH fork.
Finally, off of chain B, there is another hardfork that occurs. This being S2x.
Chain B still exists, and BTC--with the S2x implementation, forks from that
chain into a third chain.
Which is the real Bitcoin?
Now we’re dealing with a pretty interesting philosophical question.
Note : I can’t resist the urge to wax poetic for a second, if you’re not
interested in the thought experiment feel free to skip this next section.
Ship Of Theseus
The way this goes is the great hero Theseus has a ship that he sailed on to
battle. During his adventures, boards would rot from the sea water and were
replaced. Each time one of the boards were removed, they were brought back
to his home city and assembled in a museum. Eventually, all of the boards in
Theseus’ ship were replaced and in the museum stood a perfect replica of
Theseus’ original ship.
Which is the real ship? Is it the ship made entirely from new boards, or is it
the ship in the library made entirely of the original boards, then reassembled?
Is there a metaphysical--or, some would say, spiritual--property present
within the object? Does the essence of the ship carry on to its new form? Is
this new ship--completely different in every respect--the same ship? The
“natural” inclination we have is to say “yes!” We have quite a lot of
experience in this regard. The cells in our body are replaced every 7 years or
so, we are effectively a completely different entity, but there’s a lasting
continuity. Many cultures refer to this as a “soul.” Secular cultures would
refer to this as an “ego.”
On the other hand, a ship has no “essence.” Its existence is physical, it is a
tool comprised of specific parts in a specific arrangement. The real ship is the
recreated ship in the museum. All of the pieces are identical to the original
ship. All of the pieces are in their appropriate place. It’s clear that the essence
of a thing is simply an illusion, and the actual entity is the parts it is
comprised of. We have difficulty not viewing the recreated ship as being the
original due to our predisposition towards object permanence.
I am sure you have your opinion, but there’s really no correct answer on the
matter.

Back To Bitcoin Cash v. Bitcoin

Who has the real coin?
Technically speaking, Roger Ver’s claim that BCH is the real Bitcoin is
really not that far off. BCH is much like the ship in the museum. It is closest
to the original BTC protocol. Functionally speaking, it operates in the same
way as the Bitcoin that existed prior to SegWit, like the Bitcoin that
experienced the parabolic runup. Are his marketing strategies a bit unethical?
Probably. But in a hyper-capitalistic, unregulated, dog-eat-dog market, that’s
what you should expect.
Bitcoin--or Bitcoin Core, if you’re a BCH fan--is the current iteration of the
chain. It is also Bitcoin. It is the ship that Theseus continued to sail on; the
ship that had to replace its rotting boards. For all intents and purposes it is
actually the true Bitcoin because it has continued on with the metaphysical
essence of the original Bitcoin.
If you’re of the opinion that BTC is the true and only Bitcoin, you’re
incorrect philosophically speaking, but functionally, you are correct as well.
I told you these things can be tricky.
You as the reader are free to make up your mind on the matter. I don’t care
either way.
For the sake of transparency however, I will elaborate on my opinion briefly.

My Take On BCH vs. BTC

Due to the direction the current version of the Bitcoin protocol is taking--S2x
and it’s adoption of the Lightning Network (discussed in the next chapter) --I
think that is has begun to shy away from its original idea of being a
decentralized P2P electronic cash system. I believe Lightning Network--
while being a very clever programming feat--serves to centralize the Bitcoin
network, and makes it a lot more like VISA than a decentralized
cryptocurrency.
For that reason, despite it being the metaphysical continuation of Bitcoin, it is
way different than the original essence. Is this a bad thing? Not really, I
actually am curious to see how the experiment plays out. There’s a level of
intelligence found in the crowd, especially in the case of open source
projects. This could turn out to be a great direction for the coin, especially
since the Lightning Network does open up room for smart contracts.
However, it is pretty impossible to argue that Bitcoin Cash is not Bitcoin. It
has a shared history and it is closest to the original protocol. Just saying.
 Chapter 5
What Is The Lightning Network?
Direct Answer: A method of conducting Bitcoin transactions off of the
blockchain in order to decrease congestion.
As we spoke about in the last chapter, the popularity of Bitcoin, and
cryptocurrencies in general, experienced a meteoric rise over the past several
years. While the original intent has always been for large scale mass
adoption, practically speaking, there have been a few technological hiccups.
The scaling issues that Bitcoin experiences has had two proposed solutions.
The first being simply to remove the cap on block size, allowing more
transactions to fit on each block. The second solution was to change the way
transactions occurred. The idea was to change what information was stored
on the block and to conduct the rest of the transaction off-chain.
These two solutions caused the community to splinter, and about 95% of the
community decided on the second solution. This path was known as SegWit,
and the ultimate goal of SegWit was The Lightning Network.

How Does It Work?

LN (henceforth how I will refer to The Lightning Network) is often
misunderstood, and quite frankly for good reason. It is a conceptually and
technologically difficult protocol to understand.
Lucky for you, you have this book, and you will officially be more well
informed than your peers.
Fundamentally, LN relies upon the idea: “If a tree falls in the forest, and no
one is around to hear it, did it happen?”
...I’m seriously not making that up. It’s in the official whitepaper.
Essentially, the creators of LN, Joseph Poon and Thaddeus Dryja, foresaw
the scalability issues that BTC would experience. Comparing BTC to the
VISA network, Poon and Dryja noted the astronomically large block size that
would be required to handle a similar load. While Moore’s Law may indicate
the possibility of this working in the future, they felt it important to mitigate
this issue in the present.

“The payment network Visa achieved 47,000 peak transactions per second (tps) on its network
during the 2013 holidays, and currently averages hundreds of millions per day. Currently, Bitcoin
supports less than 7 transactions per second with a 1 megabyte block limit. If we use an average of
300 bytes per Bitcoin transaction and assumed unlimited block sizes, an equivalent capacity to
peak Visa transaction volume of 47,000/tps would be nearly 8 gigabytes per Bitcoin block, every
ten minutes on average. Continuously, that would be over 400 terabytes of data per year.”
-Poon and Dryja (The Bitcoin Lightning Network: Scalable Off-Chain Instant Payments)

The above quote is a bunch of technical jargon that amounts to: “we’re going
to need a bigger boat.”
Effectively, LN opens up a private payment channel. Both parties, agree to
open this channel and put up a specified amount of BTC each. Once the
channel has been opened, the two parties are free to exchange with one
another as often as they like. The initial wagered BTC that opened the
channel acts as their consent to exchange. These channels are what we call
smart contracts.
Once both parties agree to either end their payment channel or if either party
disagrees with the nature of a transaction, the channel will close, and the final
net balance will be posted on the blockchain. In the case of a disputed
transaction, the final mutually agreed upon balance would be posted to the
blockchain. All of the transactions prior to the final ending balance are
deleted along with the payment channel, and the last successful transaction is
posted on the blockchain in the form of the final ending balance.
LN would effectively act as a connection of indefinite payment channels.
Limiting the posting of transactions simply to the final ending balance,
drastically reduces the amount of data needed to be stored, and consequently
allows for the network to scale.
In effect, all of the transactions that occurred within the smart contract, never
occurred as far as the blockchain is concerned because “...no one was around
to hear it.”

Is This Safe?
In the previous chapter, we briefly touched on transaction malleability. The
theoretical weakness found in Bitcoin transactions would make LN incredibly
insecure. Since a secondary payment channel is being opened, if an adversary
were to alter the outcome of the final transaction, the payment channel has
already closed, and the other party couldn’t do much about it. This is why the
push for SegWit was required.
There is another security limitation however. In order for the dispute feature
to work, it would theoretically require all users to monitor the blockchain for
fraud. This of course would never happen. As a response, they created
“watchtower” nodes.
Here’s the thing.
If you’re entrusting “watchtower” nodes with the power to settle disputes,
you’ve now just created a trusted third-party. If you remember, the whole
point of Bitcoin is to be a trustless peer-to-peer cash system.
One could argue that this isn’t quite the same as having a trusted third party
because the nodes are within the Bitcoin network, and you would have a
point.
Who knows? This is one of those situations where only time will tell if this
was a good decision for the protocol or not.
 Chapter 6
Is This Even Legal?
Direct Answer: Yes, but not all of it and not everywhere.
As it currently stands, Bitcoin has not been made illegal anywhere. Which,
for all intents and purposes, makes it legal. The issue is, it is such a new
technology, that allows for so many things to occur, that there exists a lot of
potential to break the laws of your country or another country. Bitcoin is
decentralized and global; which country’s laws does it abide by? Are you
breaking the law by using it?
It makes perfect sense to be confused about the legality of Bitcoin because
quite frankly no one is 100% sure about how Bitcoin and other
cryptocurrencies should be handled under the law.
At the same time, Satoshi, as well as diehard BTC users feel as if it is above
the law. That the entire point of creating this trustless decentralized system
was to circumvent the short-sided nature of nationstates and government. It
was to free the people to commerce with one another and govern themselves.
These people feel that no bank, government, or person can or should be able
to have centralized authority over the network, and that it should be “for the
people and by the people.”

Is Bitcoin Useful For Illegal Activities?

Yes.
I bet you expected me to spin the issue.
Yes, Bitcoin is used for illegal activities, but so is cash. In fact, cash is
anonymous and you can spend it on anything. You can buy drugs or
prostitutes in the United States (where I am writing this book), but they are
both illegal. By the same token, Bitcoin does allow for users to circumvent
local laws and participate in illegal activities.
Hopefully, by now you’re beginning to see that Bitcoin and other
cryptocurrencies are so much more than that.
Is Bitcoin Anonymous?
This is such a common misconception, and it’s important that, as a user you
understand, unequivocally, that Bitcoin is not anonymous . In fact, as we
already know, all transactions are posted on the blockchain. Bitcoin is
extremely transparent.
With that being said, there are projects such as Bitcoin Private (BTCP) or
Monero (XMR) that claim anonymity (BTCP is a hardfork from the Z Classic
coin). I am not familiar enough with many of these coins to speak on them,
but it is important that you understand the distinction.
Now, there is a level of anonymity that this hypervisibility provides. When
you have millions of transactions, all of which are associated with different
hex strings that we use for our wallet addresses, it does allow for a user to be
lost in the noise. Plus, you are always free to create new Bitcoin wallets, hide
the private keys and make sure that no association exists between you and the
wallet. This is not anonymity though. There is nothing stopping an entity
from tracing all of your transactions through the blockchain.
It has been said, “bItcoin is about as anonymous as a prank phone call.”
Take from that what you will.

Can Bitcoin Be Regulated?

Like many other questions I have attempted to answer for you, this one is
tricky. There is a lot that makes Bitcoin incredibly resistant to regulation, but
with a little bit of creativity, governments can impose indirect regulation.
First and foremost, no one can gain access to your Bitcoin if you store it in a
Bitcoin wallet and you secure your private keys. Now, it’s possible that third
party wallets can be hacked, but as far as we know currently, the wallets
themselves are pretty failsafe. It is possible that computing power can
advance to such a point that the wallets are no longer safe, but if that occurs,
there will be much bigger problems to worry about. Your standard bank
accounts and pretty much all private records in most institutions would be at
risk as well.
If your Bitcoin is in a trusted Bitcoin wallet, no government can reach them.
Great! But, not really.
How do you buy the Bitcoin? Typically, you need to go through an exchange.
These exchanges are businesses and they are registered with regulatory
government business bureaus.
Okay, let’s say you’re not interested in buying Bitcoin, and you’d rather mine
it instead. Well, now you’re putting out spiked electricity usage, and unless
you’re clever enough to hide it, your power company can likely figure out
what you’re up to. That power company is under government regulation.
Let’s say you already have Bitcoin and its in a wallet, and you don’t plan to
buy from any exchanges that have any chance of being audited for whatever
reason. How do you cash out?
This problem gets really tricky. Unless there’s some massive overhaul to the
global financial system (very possible and could happen sooner than we
think), there are a lot of complications at play.
However, I can say, as long as you’re using Bitcoin and running Bitcoin
transactions to and from other Bitcoin wallets, it would be incredibly difficult
for a government entity to do anything about it.

What About Taxes? Do You Have To Pay Taxes On

It?
Refer to the above. If you cash out your Bitcoin, and all transactions are on
the blockchain, if the government entity knows of your wallets, they could
trace your coin and theoretically take you on capital gains, amongst other
things. This would primarily be an issue if you were cash out on an exchange
of some kind.
Additionally, if you’re trading bitcoin on an exchange that has asked you for
your personal details, such as a passport or social security number, they are
likely trying to stay in good graces with the IRS and SEC, in which case the
exchange can and will gladly hand over your tax information.
It is also theoretically possible (but highly unlikely given how slow the tech
adoption curve is for government agencies) that they could run AI to track
your Bitcoin through the blockchain, and they could then pretty easily tax
you as well. This is more hypothetical, very unlikely.

Is The Consumer Protected?

This depends on what you mean by protected.
In a cryptographic sense, yes. The consumer can participate in trustless
transactions with other entities and know that their exchange will go through
as planned.
However, if your oldest son is going off to college and you wanted to send
him tuition money, but you accidentally made a typo in his wallet address,
now thousands of dollars are lost in the ether, are you protected? Will you be
reimbursed?
No.
This is both the blessing of crypto, and what I believe will hold it back from
mass adoption at the moment. This “feature” is a consequence of the
libertarian principles that underlie the technology.
The creators were big on personal freedom and subsequently personal
responsibility. Because of this, you now have to assume responsibility for lost
coins. Similarly, if you forget the private key to your Bitcoin wallet or if you
are the victim of theft, you are completely responsible.
There is no central authority, and thus there is no one you can go to in the
event of an accident.
There’s a possibility that crypto insurance becomes a thing (a few companies
already exist from what I’ve been told), or that some other third-party finds a
way to rectify this issue, but that’s how it stands at the current moment, for
better or for worse.
 Chapter 7
Alright, I’m Sold. How Do I Get Some?
Direct Answer: Either buy on exchanges or mine.
Here we are at last. You have learned about all of the underpinnings in
Bitcoin and the basics of the cryptosphere. You’re sold, you want some
Bitcoin, but how do you get it?
We’ve spoken about some of these methods briefly, but this chapter will
cover them more extensively. It will also briefly mention things you ought to
look out for in the space.
Note: All of this information is as it stands in 2018 and it’s very likely that
this information could becoming outdated in the future.

Mining Bitcoin
As a disclaimer, this is not my forte. There are many amazing books and
resources available on Bitcoin mining, but I will let this section serve as a
primer.
Earlier on, we spoke about what mining is, so how do you get started?
First, you’re going to need a PC with a strong graphics card.
In the early days of Bitcoin, the mining difficulty was set to be far lower, so
there was a far lower barrier for entry. At this current moment, unless you
have several particularly strong PCs with a very strong graphics cards, it will
be extremely difficult for you to mine.
Additionally, since Bitcoin is a proof-of-work coin, the value of each coin
comes from the energy expenditure. Since I am not psychic, I do not know
how expensive it is to mine Bitcoin at the time of you reading this, but at the
time of me writing this, Bitcoin is hovering around $6,000 USD and it costs
roughly $8,000 in the United States to mine. At the time of my writing this, it
costs around $25,000 to mine in South Korea. This clearly won’t do.
If you live in another country, or have connections, you can mine profitably,
but unless you live somewhere like Trinidad & Tobago or Venezuela, you’re
likely out of luck--if you’re an individual (the cost to mine BTC in Venezuela
is currently $500 per coin).
If things change between the time of me writing this, and whenever you end
up reading this, then this is what you do:
First, you would install a miner. With a standard PC this should be pretty
straight forward. Once the miner is installed, you set it up, and let your
graphics card run. Easy peasy.

Buying Bitcoin On Exchanges

There are quite a few exchanges, and every year more are added to the list.
Depending on your country of origin, you could be using one of a myriad of
exchanges. As an American I will provide an American’s viewpoint, but
there are currently, and there will be many more, exchanges that allow for
Bitcoin buying in EUR, JPY, KRW, etc.
When you’re choosing which exchange to buy your Bitcoin from, it is very
important that you determine whether you’re buying “shares” of Bitcoin or if
you’re buying actual Bitcoin that will allow for you to withdraw and store the
private keys.
At the current point in time, exchanges like Robinhood, have their own store
of Bitcoin, and users of their app do not own Bitcoin directly. The users are
buying shares of the community Bitcoin pile, and they can withdraw the USD
profits from any gain made. For many consumers, this is more than enough;
however, if you’d rather own bricks of gold over a gold ETF, I would choose
another option.
Exchanges such as Coinbase, Bitifinex, Kraken, etc. allow for their customers
to buy Bitcoin directly from them as well as withdraw that BTC for their own
personal use. I am also sure that very soon there will be many more avenues
for purchasing BTC. Make sure to do your own research on any exchange,
but at the moment this is the major distinction that exists.
Once you have bought your Bitcoin, it is very important that you know that
you do not own Bitcoin that is left on an exchange.
You own this Bitcoin--on paper.
If you want to have full ownership of your Bitcoin, you must have your own
Bitcoin wallet. You can then transfer your Bitcoin to your Bitcoin wallet and
it will be safe.
Exchanges can get hacked, and once that happens, your Bitcoin is sitting
there for the taking. If you are not using your Bitcoin for a trade, then I
strongly advise you to secure your Bitcoin in an external wallet. If you don’t
believe me, ask people who have been in Bitcoin since 2014 about the
Mt.Gox hack. The ripples (no pun intended) from that situation are still being
felt in the Bitcoin community.

Making Transactions
There’s a slew of reasons why you could be making a bitcoin transaction and
many of them require exchanging your bitcoin from one wallet to another--
probably a merchant’s--wallet. The process for this can be a bit scary, but
once you get the hang of it, it’s very easy.
Currently, there’s some danger associated with transactions. I have a very
good feeling that this will change as time goes on, but for now it is critical
that you are careful whenever you transfer bitcoin into and out of your
wallet . If you write the wrong characters or send your bitcoin to a non-
bitcoin wallet, then the coins will be lost in the transaction (This applies to
other cryptocurrencies as well). Some websites and wallets can stop you from
sending bitcoin in the event that you entered an “invalid” address, but from
the perspective of your wallet, they have no idea whether or not the address
you sent is “wrong,” these address are randomly generated, so it could be
any variety of characters.
In the event of missent Bitcoin, you can rest assured knowing someone was
very happy to receive their gift.
When transferring you need to figure out the address of the wallet you are
transferring bitcoin to. Typically, there’s either a CP Code ( above right) or a
text string. The string might look like this:
1PFYDqkSqRURPmVnS9Zry54sZdXGxvwoip. Both this string and the CP
code link directly to my actual BTC wallet (so feel free to send me a few
satoshis).
If you download a bitcoin wallet to your phone, you can scan the CP code,
and directly send bitcoin to the address provided. This is probably the safest
way to ensure that you do not make a mistake. But fear not, if there is no CP
code, or you don’t have that feature, you can likely copy and paste the wallet
address text string. You should expect to see upper and lowercase letters as
well as numbers; there should not be any special characters. If you are the
person receiving Bitcoin, you should check your deposit address, and let the
other person follow these steps.
You can share the CP code or the wallet address with anyone; however, the
private key should not be shared with anyone . Seriously, absolutely
anyone.
Your private key will likely be a series of random words. These words are
what will allow for you to recover your wallet should it be lost (Remember,
your wallet is virtual, so lost could mean, your computer had to be wiped, or
your phone got factory reset, etc.). They are your only access to your wallet.
If you lose these words and you’re locked out of your wallet for whatever
reason, then you will not be able to re-enter it and your coins will be lost.
You are your own bank.

Trading, Online Gambling, And Ref Links

The most popular method of accumulating more bitcoin would be trading. As
I said before, there are plenty of Bitcoin exchanges, and when you make an
account with these websites typically you have the ability to trade your
Bitcoin as you would a stock market. Just like the standard stock market you
have the ability to buy an index fund with Coinbase; you have the ability to
trade Bitcoin against altcoins, like the forex market (Foreign Exchange); or
you could trade Bitcoin futures. All of these are beyond the scope of this
book, but you can certainly many resources about these topics online and in
print media.
In addition to trading, you also have the option of playing online games for
Bitcoin. There are gambling websites that use cryptocurrency for their funds.
I personally know next to nothing about online gambling games, but I am
also certain there is a lot of information out there.
Lastly, you will commonly see Twitter and Instagram accounts link you to
different Bitcoin exchanges while encouraging you to register an account.
The reason for this is, they get a kickback on the fees that the exchange
charges you every time you make a trade. Typically the exchange fee will be
less than 3% per trade, and the referral link will give the referrer something
like 20% of the money that the exchange made on your trades. When the
account has 100,000 followers, that becomes quite a hefty sum.

Contributing To The Community

Lastly, and arguably the most important way to get Bitcoin is to contribute to
the community. Whether that means writing a book on cryptocurrency,
building a project on the blockchain, a youtube channel, or simply integrating
blockchain into your other ventures. If you create value, then, just like any
other currency, you will position yourself to receive more Bitcoin.
This is the part that is entirely up to you, just note that there is so much that
this technology can do, don’t limit your ideas. Think outside of the box. Use
the blockchain in unique ways and help the space grow.
 Chapter 8
What’s Next?
It appears we’ve just about reached the end of our journey. By this point in
the book, you should have a pretty comprehensive understanding of Bitcoin
and the basics of the blockchain. A lot less complicated than you thought,
right? What’s next? What else is out there?
If you were to open a website like CoinMarketCap or some other site that
compiled all of the information about different blockchain related tech, you
would come to find that there is not just Bitcoin, but dozens of coins , and
hundreds of tokens . What’s the difference? Why do we need coins other than
Bitcoin, what does the future hold for this technology, and how might this
change the world we live in?

What’s the Difference Between A Coin And A Token?

First thing’s first, what differentiates coins from tokens?
A coin is a cryptocurrency that has its own dedicated blockchain. Bitcoin
would be a coin, Ether (part of the Ethereum Network) is a coin, as well as
many others. Many coins have the ability to have applications built on top of
their dedicated blockchain. These applications are called Dapps , or
decentralized applications. These dapps, often require the use of tokens in
order to implement their functionality. Tokens are economic incentives
present within a dapp to influence user behavior.
Simply, a coin has a dedicated blockchain and a token is found within a dapp.
Coins have cross-contextual application and tokens have value within their
decentralized network.

Tokenize Everything
Within the network, tokens can do so much. We have only begun to unlock
the power of tokenomics.
Tokenomics is simply the study and design of token-based economies.
This sounds a bit far-fetched, why would you need to specifically examine
the attributes of a token based economy? Shouldn’t the tokens simply
function like money functions in our economy?
Well not quite. In our economy, the design of our currency gives it much
more power as an item to spend than it does as an item to save. If you save
dollar bills, due to the rate of inflation, they eventually become worthless.
Saving money is important, but the value of that money progresses towards
zero.
All this while living in a capitalist system. Anyone who’s ever spent enough
time in a coffee house knows of other economy models, typically socialism
and communism. Is that all there is?
Cryptocurrencies aside, it’s very possible that you’ve run into other economic
models--token economic models even. In your classroom growing up, maybe
there was some incentive system based around how many stars you received.
You would perform specific tasks, these tasks would earn you a star. If the
stars accumulated, you could get different rewards at different levels. This is
likely the most basic, and most familiar tokenomic model you’ve
experienced.
As adults, we participate with tokenomcis models daily on social media.
Most social media platforms function as follows: you create content, this
content is viewed by other members of the platforms in exchange for “likes,”
the more likes you get, the more attention you get, and this attention hacks
into the dopamine receptors of your brain to reward you. Some platforms
even allow for you to reshare posts, this being a higher reward than a simple
“like.” Some platforms have upped the ante even further and integrated actual
economy incentives into this attention-backed token economy
Believe it or not, our societal structure has quickly begun to shift because of
tokenomic models. These dapps are using the blockchain and economic
incentives--amongst other things--to influence behavior on their network.
Whether that be Golem (GNT) who gives users tokens for contributing their
computer’s computational power to its network. This decentralized network
of computational power, creates a supercomputer, but for a far cheaper price
tag.
When you’re designing a token economy, it’s very important to consider the
behavior you want to transpire in your network. For example, if you have too
few coins, each coin is worth significantly more, thus increasing the coins
intrinsic value. The members of the network would be incentivized to not
spend their tokens, but to hoard them instead.

Self Governance
Once you’ve begun to drink the blockchain kool-aid, you begin to see that
there is unlimited potential found within decentralized applications. The
transformative power that the internet promised, begins to feel like it will
actually come to pass.
A global decentralized network, run by the people of this world, and for the
people of this world. The potential to dissolve the nation state and create a
world of self governance. But what will that look like?
Due to the decentralized nature of the blockchain, we have begun to work on
models of governance that resemble our physical models of government, but
are decentralized and tokenized on the blockchain.
Previously, we have taken a look at Poof-of-Work coins, but as time has gone
on, more systems of self-governance have arisen. Mostly commonly, the
proof-of-stake and delegated proof-of-stake models.
Let’s begin with the PoW (proof-of-work) model. Energy expenditure is
taken to be the digital equivalence of labor, thus providing value for the
network. This value is also used as confirmation. Each of the nodes, check to
see which chain is the longest, and that chain, because it has the longest
amount of verified work, is considered to be the real chain. The simplicity of
this method shines because there can be no dispute about which chain has
done more work, and thus they reach consensus.
Proof-of-Stake has become another popular method for governance.
Essentially, wallets can “stake” or put up their coins to the network. These
coins cannot be used, but they represent how “invested” that party is in the
success of the network. Thus, whenever a vote needs to be held, the wallets
with the largest stake are given the most power in the decisions of the
network. These wallets have the most to lose, so they should also be the most
motivated to vote in favor of the network’s success.
From the PoS model, has come an alternative version, the Delegated Proof of
Stake Model (DPoS). Just like the PoS model, nodes stake their coins, but
now, specific nodes are chosen to be representatives. These representatives
can be replaced if they lose their reputation in the network. These
representatives have the majority of the voting power and they collectively
make decisions for the network. This allows for consensus to be reached
relatively quickly.

Real World Applications

When you see the rapid growth of cryptocurrencies, it becomes very easy to
get tunnel-vision and to only conceptualize the blockchain as a means of
verifying the transfer for wealth, but it is important to think outside of the box
and extrapolate on ways this technology can be transferred to other
applications.
Let’s start with the first principles:

1. Public ledger
2. Trustless verification
3. Decentralized

Any real world application that can benefit from these intrinsic properties of
the technology are possible applications of the blockchain.
At the moment, The United States is having a gun control problem. There are
many public shootings, and many people are dying. The American people do
not want to give up their guns in totality, and why should they? The US is a
very large country, it has all types of terrain, and all kinds of economic
situations. Some people hunt for their food or their occupation. Attempts
have been made to regulate guns to keep them out of the hands of those that
are mentally ill or dangerous, but this becomes very difficult. Many stores
can’t keep track of these things, and some states have weaker gun regulation
than others. This is where the blockchain could help.
If there were a blockchain that could verify the buyers ID, cross referenced
with whether the buyer had any medical flags or criminal history. This whole
process can be done very quickly and updated from any gun merchant in any
state--or country. This blockchain would create global accountability at the
point-of-sale. Will this stop criminals who get their guns through other
means? No, but this could very easily inhibit many of the criminals who
simply walk into sporting goods stores and buy guns without even the
slightest difficulty.
This wouldn’t have to stop at the regulation of illicit materials (e.g. guns,
medicine, etc.), you could use the blockchain to verify the supply chain or the
legitimacy of precious gems. The blockchain could digitize the remnants of
our physical papertrail. Ever have to search through all of your files for the
original title to your car in order to sell it? Ever freak out because you
couldn’t find your birth certificate? Right now, we rely on notarized official
documents, but why couldn’t we just use a public ledger? If the dealership
transferred the ownership of the car from the previous deed holder to the new
deed holder on the blockchain, then that entire process would be unnecessary.

Closing Thoughts
There is no doubt that the blockchain technology will play a critical role in
the future of our world. The ability to reliably verify trustless transactions is
simply too great of a technological stepforward to not have a lasting impact.
Similarly, cryptocurrencies aren’t going anywhere--though there’s no
guarantee that any particular currency will survive.
Technological progress can be viewed as paradigm shifts brought on by
transformative technologies. I can wholeheartedly say that we are
experiencing the beginning of a new era. There is no doubt in my mind, that
the blockchain will reorganize our world, and have a profound effect on the
future world.
I am excited to see how this world unfolds, and I hope that this book acts as
your first step into this new frontier.
 References
https://cointelegraph.com/Bitcoin-cash-for-beginners/what-is-Bitcoin-
cash#story-of-the-hard-fork
https://satoshi.nakamotoinstitute.org/quotes/economics/
https://Bitcointalk.org/index.php?topic=130619.0
https://www.investopedia.com/terms/c/currency.asp
https://lightning.network/lightning-network-paper.pdf
https://golem.network/
https://www.fool.com/investing/2018/04/11/20-real-world-uses-for-
blockchain-technology.aspx
https://blockgeeks.com/guides/dapps/
https://bitcoin.org/en/faq#who-controls-the-bitcoin-network
https://bitcoin.org/en/faq