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@ -51,7 +51,7 @@ Satoshi Nakamoto withdrew from the public in April of 2011, leaving the responsi
.A Solution to a Distributed Computing Problem .A Solution to a Distributed Computing Problem
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((("Byzantine Generals Problem")))Satoshi Nakamoto's invention is also a practical solution to a previously unsolved problem in distributed computing, known as the "Byzantine Generals' Problem." Briefly, the problem consists of trying to agree on a course of action by exchanging information over an unreliable and potentially compromised network. Satoshi Nakamoto's solution, which uses the concept of proof-of-work to achieve consensus without a central trusted authority, represents a breakthrough in distributed computing science and has wide applicability beyond currency. It can be used to achieve consensus on decentralized networks to prove the fairness elections, lotteries, asset registries, digital notarization, and more. ((("Byzantine Generals Problem")))Satoshi Nakamoto's invention is also a practical solution to a previously unsolved problem in distributed computing, known as the "Byzantine Generals' Problem." Briefly, the problem consists of trying to agree on a course of action by exchanging information over an unreliable and potentially compromised network. Satoshi Nakamoto's solution, which uses the concept of proof-of-work to achieve consensus without a central trusted authority, represents a breakthrough in distributed computing science and has wide applicability beyond currency. It can be used to achieve consensus on decentralized networks to prove the fairness of elections, lotteries, asset registries, digital notarization, and more.
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@ -60,41 +60,41 @@ Satoshi Nakamoto withdrew from the public in April of 2011, leaving the responsi
Bitcoin is a technology, but it expresses money that is fundamentally a language for exchanging value between people. Let's look at the people who are using bitcoin and some of the most common uses of the currency and protocol through their stories. We will reuse these stories throughout the book to illustrate the real-life uses of digital money and how they are made possible by the various technologies that are part of bitcoin. Bitcoin is a technology, but it expresses money that is fundamentally a language for exchanging value between people. Let's look at the people who are using bitcoin and some of the most common uses of the currency and protocol through their stories. We will reuse these stories throughout the book to illustrate the real-life uses of digital money and how they are made possible by the various technologies that are part of bitcoin.
North American Low-Value Retail:: North American low-value retail::
Alice lives in Northern California's Bay Area. She has heard about bitcoin from her techie friends and wants to start using it. We will follow her story as she learns about bitcoin, acquires some, and then spends some of her bitcoin to buy a cup of coffee at Bob's Cafe in Palo Alto. This story will introduce us to the software, the exchanges, and basic transactions from the perspective of a retail consumer. Alice lives in Northern California's Bay Area. She has heard about bitcoin from her techie friends and wants to start using it. We will follow her story as she learns about bitcoin, acquires some, and then spends some of her bitcoin to buy a cup of coffee at Bob's Cafe in Palo Alto. This story will introduce us to the software, the exchanges, and basic transactions from the perspective of a retail consumer.
North American High-Value Retail:: North American high-value retail::
Carol is an art gallery owner in San Francisco. She sells expensive paintings for bitcoin. This story will introduce the risks of a "51%" consensus attack for retailers of high-value items. Carol is an art gallery owner in San Francisco. She sells expensive paintings for bitcoin. This story will introduce the risks of a "51%" consensus attack for retailers of high-value items.
Offshore Contract Services:: Offshore contract services::
Bob, the cafe owner in Palo Alto, is building a new website. He has contracted with an Indian web developer, Gopesh, who lives in Bangalore, India. Gopesh has agreed to be paid in bitcoin. This story will examine the use of bitcoin for outsourcing, contract services, and international wire transfers. Bob, the cafe owner in Palo Alto, is building a new website. He has contracted with an Indian web developer, Gopesh, who lives in Bangalore, India. Gopesh has agreed to be paid in bitcoin. This story will examine the use of bitcoin for outsourcing, contract services, and international wire transfers.
Charitable Donations:: Charitable donations::
Eugenia is the director of a children's charity in the Philippines. Recently she has discovered bitcoin and wants to use it to reach a whole new group of foreign and domestic donors to fundraise for her charity. She's also investigating ways to use bitcoin to distribute funds quickly to areas of need. This story will show the use of bitcoin for global fundraising across currencies and borders and the use of an open ledger for transparency in charitable organizations. Eugenia is the director of a children's charity in the Philippines. Recently she has discovered bitcoin and wants to use it to reach a whole new group of foreign and domestic donors to fundraise for her charity. She's also investigating ways to use bitcoin to distribute funds quickly to areas of need. This story will show the use of bitcoin for global fundraising across currencies and borders and the use of an open ledger for transparency in charitable organizations.
Import/Export:: Import/export::
Mohammed is an electronics importer in Dubai. He's trying to use bitcoin to buy electronics from the USA and China for import into the U.A.E. to accelerate the process of payments for imports. This story will show how bitcoin can be used for large business-to-business international payments tied to physical goods. Mohammed is an electronics importer in Dubai. He's trying to use bitcoin to buy electronics from the US and China for import into the UAE to accelerate the process of payments for imports. This story will show how bitcoin can be used for large business-to-business international payments tied to physical goods.
Mining for Bitcoin:: Mining for bitcoin::
Jing is a computer engineering student in Shanghai. He has built a "mining" rig to mine for bitcoins, using his engineering skills to supplement his income. This story will examine the "industrial" base of bitcoin, the specialized equipment used to secure the bitcoin network and issue new currency. Jing is a computer engineering student in Shanghai. He has built a "mining" rig to mine for bitcoins, using his engineering skills to supplement his income. This story will examine the "industrial" base of bitcoin: the specialized equipment used to secure the bitcoin network and issue new currency.
Each of these stories is based on real people and real industries that are currently using bitcoin to create new markets, new industries, and innovative solutions to global economic issues. Each of these stories is based on real people and real industries that are currently using bitcoin to create new markets, new industries, and innovative solutions to global economic issues.
=== Getting Started === Getting Started
((("bitcoin","forms of")))To join the bitcoin network and start using the currency, all a user has to do is download an application or use a web application. Because bitcoin is a standard, there are many implementations of the bitcoin client software. There is also a "reference implementation," also known as the Satoshi client, which is managed as an open source project by a team of developers and is derived from the original implementation written by Satoshi Nakamoto. ((("bitcoin","forms of")))To join the bitcoin network and start using the currency, all a user has to do is download an application or use a web application. Because bitcoin is a standard, there are many implementations of the bitcoin client software. There is also a reference implementation, also known as the Satoshi client, which is managed as an open source project by a team of developers and is derived from the original implementation written by Satoshi Nakamoto.
The three primary forms of bitcoin clients are: The three main forms of bitcoin clients are:
Full client:: ((("full clients")))((("full nodes")))A full client, or "full node" is a client that stores the entire history of bitcoin transactions (every transaction by every user, ever), manages the users' wallets, and can initiate transactions directly on the bitcoin network. This is similar to a standalone email server, in that it handles all aspects of the protocol without relying on any other servers or third-party services. Full client:: ((("full clients")))((("full nodes")))A full client, or "full node," is a client that stores the entire history of bitcoin transactions (every transaction by every user, ever), manages the users' wallets, and can initiate transactions directly on the bitcoin network. This is similar to a standalone email server, in that it handles all aspects of the protocol without relying on any other servers or third-party services.
Light client:: ((("light client")))A lightweight client stores the user's wallet but relies on third-party owned servers for access to the bitcoin transactions and network. The light client does not store a full copy of all transactions and therefore must trust the third-party servers for transaction validation. This is similar to a standalone email client that connects to a mail server for access to a mailbox, in that it relies on a third-party for interactions with the network. Lightweight client:: ((("lightweight client")))A lightweight client stores the user's wallet but relies on third-party–owned servers for access to the bitcoin transactions and network. The light client does not store a full copy of all transactions and therefore must trust the third-party servers for transaction validation. This is similar to a standalone email client that connects to a mail server for access to a mailbox, in that it relies on a third party for interactions with the network.
Web Client:: ((("web clients")))Web clients are accessed through a web browser and store the user's wallet on a server owned by a third party. This is similar to webmail in that it relies entirely on a third-party server. Web client:: ((("web clients")))Web clients are accessed through a web browser and store the user's wallet on a server owned by a third party. This is similar to webmail in that it relies entirely on a third-party server.
.Mobile Bitcoin .Mobile Bitcoin
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((("mobile clients")))((("smartphones, bitcoin clients for")))Mobile clients for smartphones, such as those based on the Android system, can either operate as full clients, light clients, or web clients. Some mobile clients are synchronized with a web or desktop client, providing a multiplatform wallet across multiple devices but with a common source of funds. ((("mobile clients")))((("smartphones, bitcoin clients for")))Mobile clients for smartphones, such as those based on the Android system, can either operate as full clients, lightweight clients, or web clients. Some mobile clients are synchronized with a web or desktop client, providing a multiplatform wallet across multiple devices but with a common source of funds.
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The choice of bitcoin client depends on how much control the user wants over funds. A full client will offer the highest level of control and independence for the user, but in turn puts the burden of backups and security on the user. On the other end of the range of choices, a web client is the easiest to set up and use, but the trade-off with a web client is that counterparty risk is introduced because security and control is shared by the user and the owner of the web service. If a web-wallet service is compromised, as many have been, the users can lose all their funds. Conversely, if users have a full client without adequate backups, they may lose their funds through a computer mishap. The choice of bitcoin client depends on how much control the user wants over funds. A full client will offer the highest level of control and independence for the user, but in turn puts the burden of backups and security on the user. On the other end of the range of choices, a web client is the easiest to set up and use, but the trade-off with a web client is that counterparty risk is introduced because security and control is shared by the user and the owner of the web service. If a web-wallet service is compromised, as many have been, the users can lose all their funds. Conversely, if users have a full client without adequate backups, they may lose their funds through a computer mishap.