Bitcoin, Blockchain, and Cryptoassets

A Comprehensive Introduction

by Schär, Berentsen

ISBN: 9780262365048 | Copyright 2020

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An introduction to cryptocurrencies and blockchain technology; a guide for practitioners and students.

Bitcoin and blockchain enable the ownership of virtual property without the need for a central authority. Additionally, Bitcoin and other cryptocurrencies make up an entirely new class of assets that have the potential for fundamental change in the current financial system. This book offers an introduction to cryptocurrencies and blockchain technology that begins from the perspective of monetary economics.

The book first presents a nontechnical discussion of monetary theory, enabling readers to understand how cryptocurrencies are a radical departure from existing monetary instruments, and provides an overview of blockchain technology and the Bitcoin system. It then takes up technical aspects of Bitcoin in more detail, covering such topics as the Bitcoin network, its communications protocol, the mathematics underpinning decentralized validation, transaction types, the data structure of blocks, the proof-of-work consensus mechanism, and game theory. Finally, the book discusses specific issues and applications, including price volatility, regulatory uncertainty, and central bank cryptocurrencies, as well as such alternative applications as decentralized verification and attestation, tokens, and smart contracts. The concluding chapter offers practical advice on getting started with Bitcoin. End-of-chapter exercises allow readers to test their knowledge. Bitcoin, Blockchain, and Cryptoassets is suitable for classroom use and as a reference for practitioners.

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Contents (pg. v)
Preface (pg. vii)
I: Introduction (pg. 1)
1. The Context of Monetary Theory (pg. 3)
1.1 Origin of a Monetary Unit (pg. 5)
1.2 Functions of a Monetary Unit (pg. 5)
1.3 Fundamental Properties of Money (pg. 8)
1.4 Monetary Value (pg. 9)
1.5 Monetary Control Structures (pg. 13)
1.6 Exercises (pg. 28)
2. Bitcoin Overview (pg. 31)
2.1 Classification of Bitcoin (pg. 31)
2.2 Bitcoin Components: An Overview (pg. 33)
2.3 Bitcoin's Unique Selling Proposition (pg. 34)
2.4 Bitcoin's Technology: A Primer (pg. 36)
2.5 Origin and Governance (pg. 46)
2.6 Exercises (pg. 65)
II: Technical Analysis (pg. 67)
3. Transactional Capacity (pg. 69)
3.1 Bitcoin Network (pg. 69)
3.2 Extended Network (pg. 75)
3.3 Bitcoin Communication Protocol (pg. 78)
3.4 Exercises (pg. 81)
4. Transactional Legitimacy (pg. 83)
4.1 Pseudonyms (pg. 83)
4.2 Hash Functions (pg. 98)
4.3 Signatures (pg. 100)
4.4 Transactions (pg. 117)
4.5 Script Conditions (pg. 122)
4.6 Signature Hash Type (pg. 129)
4.7 Segregated Witness (SegWit) (pg. 130)
4.8 Exercises (pg. 138)
5. Transactional Consensus (pg. 139)
5.1 Blocks and the Blockchain (pg. 139)
5.2 Consensus Protocol (pg. 146)
5.3 Bitcoin Mining: Incentives and Examples (pg. 155)
5.4 Exercises (pg. 170)
III: Further Remarks (pg. 173)
6. Bitcoin's Challenges (pg. 175)
6.1 Price Volatility (pg. 175)
6.2 Scalability (pg. 194)
6.3 Adoption (pg. 209)
6.4 Political Challenges (pg. 218)
6.5 Exercises (pg. 222)
7. Further Applications (pg. 223)
7.1 Decentralized Verification and Attestation (pg. 223)
7.2 Tokens and Colored Coins (pg. 225)
7.3 Smart Property (pg. 226)
7.4 Blockchain Contracts (Smart Contracts) (pg. 228)
7.5 Exercises (pg. 233)
8. Practical Guidelines for Bitcoin (pg. 235)
8.1 Procurement (pg. 235)
8.2 Storage (pg. 240)
8.3 Payments (pg. 246)
8.4 Exercises (pg. 250)
References (pg. 251)
Index (pg. 269)
Fabian Schär

Fabian Schär

Fabian Schä r is Professor of Blockchain, Distributed Ledger Technology, and Fintech at the University of Basel and Director of the Center for Innovative Finance.

Aleksander Berentsen

Aleksander Berentsen

Aleksander Berentsen is Professor of Economic Theory at the Faculty of Business and Economics at the University of Basel and Chairman of the Board of the Center for Innovative Finance.

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