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[[ch00_intro_what_is_bitcoin]] [[ch00_intro_what_is_bitcoin]]
== Introduction == Introduction
////Introduction should be Ch01 as preface is Ch00 - AM ////
=== What is Bitcoin? === What is Bitcoin?
((("bitcoin"))) ((("bitcoin")))
Bitcoin is digital money, a currency for and of the Internet. Bitcoin can be used to buy products or services online or in-person, just like cash or a credit card. Bitcoin can be transmitted as fast as an email from any person to any other person just by installing the software. Bitcoin is de-centralized: There is no central entity, not a bank or governing body that controls bitcoin. It operates by consensus, according to simple mathematical rules that are in the software for all to see. Bitcoin is digital money, a currency for and of the Internet. Bitcoin can be used to buy products or services online or in-person, just like cash or a credit card. Bitcoin can be transmitted as fast as an email from any person to any other person just by installing the software. Bitcoin is de-centralized: There is no central entity, not a bank or governing body that controls bitcoin. It operates by consensus, according to simple mathematical rules that are in the software for all to see.
@ -11,10 +13,13 @@ Bitcoin is the culmination of decades of research in cryptography and distribute
More than all of these parts, bitcoin is a digital economy platform, just like the Internet is a digital communications platform. With bitcoin, it is possible to build entire new financial systems, transaction types and economies on top of a purely digital, instantaneous and frictionless platform, an Internet for money. More than all of these parts, bitcoin is a digital economy platform, just like the Internet is a digital communications platform. With bitcoin, it is possible to build entire new financial systems, transaction types and economies on top of a purely digital, instantaneous and frictionless platform, an Internet for money.
=== History of bitcoin === History of bitcoin
==== A brief history of money ==== A brief history of money
//// Would the audience for this book need an introduction to money? I think we can leave most of this out or incorporate it into a briefer description. -AM ////
Money is a means of transferring or storing wealth, at its most basic. It exists in many abstract forms, least abstract (food) to highly abstract (personal cheque). Money has existed for thousands of years. The earliest form of money, recorded as an abstract account of value in written form, is heads of cattle. This is also the origin of the word "capital". Of course, a cow is not abstract, you can eat it. Very early in recorded history we see the emergence of money as an abstract token that represents some other value. Various cultures have used shells, coconuts, beans, salt, spices, feathers etc. These abstract forms of money may hold no inherent value but act only as a representation of value. Abstract forms of money are usually: Money is a means of transferring or storing wealth, at its most basic. It exists in many abstract forms, least abstract (food) to highly abstract (personal cheque). Money has existed for thousands of years. The earliest form of money, recorded as an abstract account of value in written form, is heads of cattle. This is also the origin of the word "capital". Of course, a cow is not abstract, you can eat it. Very early in recorded history we see the emergence of money as an abstract token that represents some other value. Various cultures have used shells, coconuts, beans, salt, spices, feathers etc. These abstract forms of money may hold no inherent value but act only as a representation of value. Abstract forms of money are usually:
* Lightweight and portable * Lightweight and portable
@ -27,17 +32,22 @@ Precious metals have been the predominant currency for thousands of years across
Digital money appeals to many people because it tends to combine some of the characteristics of precious metals (fungible, scarce, store of value) with the characteristics of paper money instruments (lightweight, hard to copy). In the past, currencies represented a compromise of sorts between the various desired characteristics of money. Bitcoin appeals to many as it is seen to be "no compromise" money. Digital money appeals to many people because it tends to combine some of the characteristics of precious metals (fungible, scarce, store of value) with the characteristics of paper money instruments (lightweight, hard to copy). In the past, currencies represented a compromise of sorts between the various desired characteristics of money. Bitcoin appeals to many as it is seen to be "no compromise" money.
////The comparison between digital money and precious metals/paper money is interesting but I think this could function well as a text box/sidebar element rather than its own section. -AM ////
=== History of Cryptographic-Currencies === History of Cryptographic-Currencies
((("crypto-currency"))) ((("crypto-currency")))
Cryptographic currencies depend on cryptography to control the ownership of a piece of digital data. Using cryptographic digital signatures, a user can sign a digital asset or transaction and securely prove the ownership of that asset. Cryptographic currencies depend on cryptography to control the ownership of a piece of digital data. Using cryptographic digital signatures, a user can sign a digital asset or transaction and securely prove the ownership of that asset.
Since the late 1980s when cryptography started becoming more broadly available and understood, many researchers started trying to use cryptography to build digital currencies. These early digital currency projects issued digital money, usually backed by a national currency or precious metal such as gold. In the late 1980s, when cryptography started becoming more broadly available and understood, many researchers began trying to use cryptography to build digital currencies. These early digital currency projects issued digital money, usually backed by a national currency or precious metal such as gold.
While these earlier digital currencies worked, they had several fatal flaws. Firstly, early digital currencies used a central clearinghouse to settle all transactions at regular intervals, just like a traditional banking system. Secondly, these central clearinghouses and the organizations issuing the digital currency, were highly centralized organizations, usually corporations. Unfortunately, in most cases these nascent digital currencies were targetted by worried governments and eventually litigated to death. While these earlier digital currencies worked, they had several fatal flaws. Firstly, early digital currencies used a central clearinghouse to settle all transactions at regular intervals, just like a traditional banking system. Secondly, these central clearinghouses and the organizations issuing the digital currency were highly centralized organizations, usually corporations. Unfortunately, in most cases these nascent digital currencies were targetted by worried governments and eventually litigated to death.
Bitcoin's major breakthrough is the removal of any central authority or clearinghouse. Bitcoin is decentralized by design and does not have a central issuer or clearinghouse. It is the first fully decentralized digital currency. To achieve this amazing feat, bitcoin has replace the need for a central clearinghouse with a form of distributed _consensus_ based on participants proving they are contributing to the network security via a _proof-of-work_ algorithm. Bitcoin's major breakthrough is the removal of any central authority or clearinghouse. Bitcoin is decentralized by design and does not have a central issuer or clearinghouse. It is the first fully decentralized digital currency. To achieve this amazing feat, bitcoin has replace the need for a central clearinghouse with a form of distributed _consensus_ based on participants proving they are contributing to the network security via a _proof-of-work_ algorithm.
////You break from the history of cryptocurrency into Bitcoin's major breakthrough. With this headind you'd expect to read about the evolution of cryptocurrency from early iterations to Bitcoin's beginning in 2009. If you're not going to cover this, I might change the header or move this info. I would also avoid sweeping phrases like "amazing feat." - AM////
The result of this deliberate decentralization is that bitcoin has removed two major areas of risk for digital currencies: The result of this deliberate decentralization is that bitcoin has removed two major areas of risk for digital currencies:
* Third Party Risk - Counterparty Risk * Third Party Risk - Counterparty Risk
@ -48,8 +58,14 @@ When a transaction occurs in a traditional financial payment network there are a
All world currencies today are controlled by sovereign nation states. This control has significant political and economic benefits and is, of course, zealously protected. As a result, attempts to create competing and independent digital currencies, have quickly come under legal, or sometimes extra-legal, attack. Without a central organization, clearinghouse or controlling authority, bitcoin is not easy to attack. It is resilient to interference because control of the network and security of the currency is distributed as much as possible. All world currencies today are controlled by sovereign nation states. This control has significant political and economic benefits and is, of course, zealously protected. As a result, attempts to create competing and independent digital currencies, have quickly come under legal, or sometimes extra-legal, attack. Without a central organization, clearinghouse or controlling authority, bitcoin is not easy to attack. It is resilient to interference because control of the network and security of the currency is distributed as much as possible.
////Again, this is good info, but I don't see how it fits into the History of Cryptocurrencies. I might include this in as introductory material in a section on security. - AM////
==== Quick Glossary ==== Quick Glossary
////Add text here -AM ////
////A glossary is normally alphabetical. If you keep it as "Quick Glossary" I'd rearrange to alphabetical order. Otherwise, you can keep it as a non-alphabetical list of terms, but change "Quick Glossary" and add text beforehand with something to the effect of "Here are some common terms that will be used in the following chapters..." -AM ////
bitcoin:: bitcoin::
((("bitcoin"))) ((("bitcoin")))
The name of the currency unit (the coin), the network and the software The name of the currency unit (the coin), the network and the software
@ -67,7 +83,7 @@ wallet::
secret key (aka private key):: secret key (aka private key)::
((("secret key"))) ((("secret key")))
((("private key", see="secret key"))) ((("private key", see="secret key")))
The secret number that unlocks bitcoins sent to the corresponding address The secret number that unlocks bitcoins sent to the corresponding address.
transaction:: transaction::
((("transaction"))) ((("transaction")))
@ -85,6 +101,8 @@ network::
((("network"))) ((("network")))
A peer-to-peer network that propagates transactions and blocks among all nodes. A peer-to-peer network that propagates transactions and blocks among all nodes.
////Will a reader understand "blocks among all nodes" - AM ////
blockchain:: blockchain::
((("blockchain"))) ((("blockchain")))
A list of validated blocks, each linking to its predecessor all the way to the genesis block. A list of validated blocks, each linking to its predecessor all the way to the genesis block.
@ -97,6 +115,8 @@ proof-of-work::
((("proof-of-work"))) ((("proof-of-work")))
A piece of data that requires significant computation to find. In bitcoin, a hash that is less than a target. A piece of data that requires significant computation to find. In bitcoin, a hash that is less than a target.
//// Will a reader understand "a hash that is less than a target"? - AM ////
difficulty:: difficulty::
((("difficulty"))) ((("difficulty")))
A network-wide setting that controls how much computation is required to find a proof-of-work. A network-wide setting that controls how much computation is required to find a proof-of-work.
@ -125,6 +145,7 @@ confirmations::
((("confirmations"))) ((("confirmations")))
Once a transaction is included in a block, it has "one confirmation". As soon as _another_ block is mined on the same blockchain, the transaction has two confirmations etc. Six or more confirmations is considered final. Once a transaction is included in a block, it has "one confirmation". As soon as _another_ block is mined on the same blockchain, the transaction has two confirmations etc. Six or more confirmations is considered final.
//// I would review this list and make sure that these terms and definitions are clear for your lowest common denomiator reader/audience. Some of these are still confusing/unclear after reading. - AM ////
=== Stories === Stories
@ -138,6 +159,8 @@ Each story represents a specific real use of bitcoin in different contexts.
Alice wants to buy a cup of coffee using bitcoin. She visits Bob's Cafe, a coffee shop that accepts bitcoin payments, as advertised by a sign declaring _"Bitcoin Accepted Here"_ in the window. At the counter, the prices may be listed in a local currency like Euros or Dollars. At the register, Bob would ring up a coffee, displaying Alice wants to buy a cup of coffee using bitcoin. She visits Bob's Cafe, a coffee shop that accepts bitcoin payments, as advertised by a sign declaring _"Bitcoin Accepted Here"_ in the window. At the counter, the prices may be listed in a local currency like Euros or Dollars. At the register, Bob would ring up a coffee, displaying
//// Is this a realistic example of how Bitcoin is used right now? Should you be qualifying this example? - AM ////
---- ----
Total: Total:
$1.50 USD $1.50 USD
@ -153,9 +176,15 @@ Alice would use a smartphone to scan the barcode on display and send the payment
In the USA, it is customary to tip 20% for good service at coffee shops. Alice may choose to tip in dollars, or may add bitcoin. In the USA, it is customary to tip 20% for good service at coffee shops. Alice may choose to tip in dollars, or may add bitcoin.
==== ====
//// I don' think this is necessary. - AM /////
==== A currency ==== A currency
((("bitcoin"))) ((("bitcoin")))
Bitcoin is a currency, the operates much like any "foreign" currency. The main difference is that it is not issued by a national government. Bitcoin currency units are called "bitcoins". Unlike traditional currencies, bitcoins are divisible to much smaller units. The smallest unit is the _satoshi_, one hundred-millionth of a bitcoin (1/100,000,000). Bitcoin can be exchanged for other currencies at specialized currency exchanges that support crypto-currencies like bitcoin. There, a customer can exchange US dollars ($) or Euros (€) for bitcoin, at the prevailing market exchange rate. Bitcoin is a currency, the operates much like any "foreign" currency. The main difference is that it is not issued by a national government. Bitcoin currency units are called "bitcoins". Unlike traditional currencies, bitcoins are divisible to much smaller units. The smallest unit is the _satoshi_, one hundred-millionth of a bitcoin (1/100,000,000). Bitcoin can be exchanged for other currencies at specialized currency exchanges that support crypto-currencies like bitcoin. There, a customer can exchange US dollars ($) or Euros (€) for bitcoin, at the prevailing market exchange rate
////I think we need to work on organization here. I don't understand the transition between "Stories" and this section. What is the segue? - AM ////
Symbols: B⃦, Ƀ, ฿ Symbols: B⃦, Ƀ, ฿
@ -184,9 +213,12 @@ Currency Code: BTC (unofficial), XBT (possible ISO standard)
((("P2P", see="peer-to-peer"))) ((("P2P", see="peer-to-peer")))
Bitcoin operates on top of a peer-to-peer network, also called "bitcoin". The bitcoin network is used to propagate transactions, new blocks and alert messages. The network operates using a relatively simple network protocol for peer discovery and blockchain replication. Bitcoin operates on top of a peer-to-peer network, also called "bitcoin". The bitcoin network is used to propagate transactions, new blocks and alert messages. The network operates using a relatively simple network protocol for peer discovery and blockchain replication.
////These read like an expansion on your glossary/repetitive. - AM ////
One interesting feature of bitcoin is that the issuance of the currency decreases automatically over time, halving every four years, reaching an absolute maximum of 21 million bitcoins issued sometime around the year 2140. One interesting feature of bitcoin is that the issuance of the currency decreases automatically over time, halving every four years, reaching an absolute maximum of 21 million bitcoins issued sometime around the year 2140.
////Should this be a text box instead of its own paragraph? - AM ////
[[chart_bitcoin_decreasing_issuance]] [[chart_bitcoin_decreasing_issuance]]
Chart of decreasing issuance over time Chart of decreasing issuance over time
@ -224,6 +256,8 @@ When a bitcoin miner discovers a new solution to the proof of work algorithm, th
Essentially, the bitcoin currency units are issued through mining, just like a central bank issues new money by printing bank notes. The amount of newly created bitcoin in each block decreases every four years. It started at 50 bitcoin per block in 2008 and halved to 25 bitcoin per block in 2012. It will halve again to 12.5 bitcoin per block in 2016. Based on this formula, bitcoin mining rewards decrease exponentially until approximately 2140 when all 21 million bitcoin have been issued. Essentially, the bitcoin currency units are issued through mining, just like a central bank issues new money by printing bank notes. The amount of newly created bitcoin in each block decreases every four years. It started at 50 bitcoin per block in 2008 and halved to 25 bitcoin per block in 2012. It will halve again to 12.5 bitcoin per block in 2016. Based on this formula, bitcoin mining rewards decrease exponentially until approximately 2140 when all 21 million bitcoin have been issued.
//// Is this repetitive? Haven't you covered block decreasing every four years already? - AM /////
Bitcoin miners also earn fees from transactions. Every transaction may include a transaction fee, in the form of a surplus of bitcoin between the transaction's inputs and outputs. The bitcoin miner gets to "keep the change" on the transactions. Bitcoin miners also earn fees from transactions. Every transaction may include a transaction fee, in the form of a surplus of bitcoin between the transaction's inputs and outputs. The bitcoin miner gets to "keep the change" on the transactions.
At the time of writing this, the fees usually represent 1% or less of a bitcoin miner's income, the vast majority coming from the newly minted bitcoins. However, as the reward decreases over time, a greater proportion of bitcoin mining earnings will come from fees, until after 2140 all bitcoin miner earnings will be in the form of transaction fees. At the time of writing this, the fees usually represent 1% or less of a bitcoin miner's income, the vast majority coming from the newly minted bitcoins. However, as the reward decreases over time, a greater proportion of bitcoin mining earnings will come from fees, until after 2140 all bitcoin miner earnings will be in the form of transaction fees.
@ -253,6 +287,8 @@ There are many different implementations of bitcoin, from the front-end user int
The reference implementation of bitcoin, which combines a full bitcoin network node, a wallet and a user interface is known as the _Satoshi Client_, or also as its executable name +bitcoind+ on Unix-like systems and +bitcoin-qt+ for the graphical user interface component. The Satoshi client is maintained by a network of volunteers as an open source project hosted on Github https://github.com/bitcoin/bitcoin. The reference implementation of bitcoin, which combines a full bitcoin network node, a wallet and a user interface is known as the _Satoshi Client_, or also as its executable name +bitcoind+ on Unix-like systems and +bitcoin-qt+ for the graphical user interface component. The Satoshi client is maintained by a network of volunteers as an open source project hosted on Github https://github.com/bitcoin/bitcoin.
////So does this match the header of "Getting Bitcoin." What is the reader supposed to do with this information? - AM ////
==== Full node client or lightweight client? ==== Full node client or lightweight client?
((("full node"))) ((("full node")))
((("lightweight client"))) ((("lightweight client")))
@ -266,7 +302,9 @@ By comparison, a lightweight client does not store a full copy of the blockchain
((("mobile wallet"))) ((("mobile wallet")))
((("desktop wallet"))) ((("desktop wallet")))
Bitcoin clients exist in many forms, and for many platforms. The examples in this book will use the reference client as well as several other desktop, mobile and web examples. For practical bitcoin use you may want to try a desktop, mobile and web wallet, or a web/mobile hybrid. Bitcoin clients exist in many forms and for many platforms. The examples in this book will use the reference client as well as several other desktop, mobile and web examples. For practical bitcoin use you may want to try a desktop, mobile and web wallet, or a web/mobile hybrid.
////I would not put the below in Tip format if it is something the reader needs to do to make use of the book. - AM ////
[TIP] [TIP]
============================================================================ ============================================================================
@ -279,6 +317,8 @@ For the purposes of following the examples in this book, we recommend you downlo
Versions for Windows, Mac, Linux and source code can be found at http://bitcoin.org/en/download Versions for Windows, Mac, Linux and source code can be found at http://bitcoin.org/en/download
////Does this explain how the reader goes about getting up and running? - AM ////
When you first run the bitcoin-qt application, it will start downloading the full blockchain, several gigabytes of data. It may take several days to fully synchronize the complete blockchain. During that time, the client will display "out of sync" next to balances and show "Synchronizing" in the footer. When you first run the bitcoin-qt application, it will start downloading the full blockchain, several gigabytes of data. It may take several days to fully synchronize the complete blockchain. During that time, the client will display "out of sync" next to balances and show "Synchronizing" in the footer.
[[bitcoin-qt-firstload]] [[bitcoin-qt-firstload]]
@ -286,6 +326,7 @@ When you first run the bitcoin-qt application, it will start downloading the ful
image::images/bitcoin-qt-firstload.png["bitcoin-qt first run"] image::images/bitcoin-qt-firstload.png["bitcoin-qt first run"]
//// This is confusing. I would explain in one section what the reader should do, whether for downloading the lightweight client or bitcoin-qt application. - AM ////
[TIP] [TIP]
============================================================================ ============================================================================
For more immediate use of the bitcoin software, try downloading a lightweight client too, one that does not have a full-node copy of the blockchain. For more immediate use of the bitcoin software, try downloading a lightweight client too, one that does not have a full-node copy of the blockchain.
@ -295,22 +336,30 @@ For more immediate use of the bitcoin software, try downloading a lightweight cl
On Android, you can find many bitcoin clients by searching for "bitcoin wallet" in the official application market. The most notable are: On Android, you can find many bitcoin clients by searching for "bitcoin wallet" in the official application market. The most notable are:
////Why are they the most notable? Why choose these over others? - AM ////
* Andreas Shildbach's Android Bitcoin Wallet https://play.google.com/store/apps/details?id=de.schildbach.wallet * Andreas Shildbach's Android Bitcoin Wallet https://play.google.com/store/apps/details?id=de.schildbach.wallet
* Mycelium light-weight node https://play.google.com/store/apps/details?id=com.mycelium.wallet$$[] * Mycelium light-weight node https://play.google.com/store/apps/details?id=com.mycelium.wallet$$[]
* Blockchain.info hybrid web/mobile wallet https://play.google.com/store/apps/details?id=piuk.blockchain.android * Blockchain.info hybrid web/mobile wallet https://play.google.com/store/apps/details?id=piuk.blockchain.android
Due to restrictions by Apple, there are no wallet applications for iOS. However, you can use web wallets in your iOS browser. Due to restrictions by Apple, there are no wallet applications for iOS. However, you can use web wallets in your iOS browser.
////Links for web wallets? - AM ////
===== Web wallets ===== Web wallets
Web wallets are bitcoin wallets that are offered as a service by various online providers. These web wallets may be held by the online service, in which case the security of the funds depends entirely on that online service provider. This is very similar to a traditional banking environment where a third party has control and maintains security over your funds. However, unlike traditional banking these companies are rarely regulated. Therefore, web wallets should be used with caution. Web wallets are bitcoin wallets that are offered as a service by various online providers. These web wallets may be held by the online service, in which case the security of the funds depends entirely on that online service provider. This is very similar to a traditional banking environment where a third party has control and maintains security over your funds. However, unlike traditional banking these companies are rarely regulated. Therefore, web wallets should be used with caution.
Web wallets are extremely convenient for new users and a great way to introduce someone to bitcoin. However, they should not be used to store large amounts of value without taking security measures, most importantly two-factor authentication. Web wallets are vulnerable to hacks and also to remote compromise via trojans or key-loggers on your own desktop computer. Many users have lost bitcoin because their account was accessed from an insecure and compromised computer, which subsequently activated an unauthorized withdrawal. Web wallets are extremely convenient for new users and a great way to introduce someone to bitcoin. However, they should not be used to store large amounts of value without taking security measures, most importantly two-factor authentication. Web wallets are vulnerable to hacks and also to remote compromise via trojans or key-loggers on your own desktop computer. Many users have lost bitcoin because their account was accessed from an insecure and compromised computer, which subsequently activated an unauthorized withdrawal.
////Links for web wallets? Notable ones? - AM ////
[TIP] [TIP]
==== ====
Always use two-factor authentication on online wallets. The risk of compromise by key-logger or compromized desktop is very high. Additionally, do not store all your bitcoin online or in a single wallet, instead spread the risk a bit. Always use two-factor authentication on online wallets. The risk of compromise by key-logger or compromized desktop is very high. Additionally, do not store all your bitcoin online or in a single wallet, instead spread the risk a bit.
==== ====
////Haven't you already pointed this tip out in the paragraphs before? - AM ////
==== Public key cryptography and crypto-currency ==== Public key cryptography and crypto-currency
((("public key"))) ((("public key")))
@ -333,6 +382,8 @@ The bitcoin network essentially carries two types of data: unconfirmed transacti
A new bitcoin client can join the network and request any block, reconstructing the blockchain from the first (Genesis) block, all the way to the most recently mined block. Since each client also contains a static digital copy of the first block embedded in the source code, it can independently verify the entire blockchain. For example, a new client would request block with height "1", and verify that it is correct and contains the correct signature for block "0", the genesis block. Now, the client has bootstrapped the blockchain, independently verifying block "1", and now has a blockchain of height "1". From here, the client can request a block with height "2" from the network. If that can be validated as a valid block that can be added, then the blockchain is confirmed to height "2" etc. After a day or more, several hundred thousand blocks later, the network node can catch up and find that it has the same height as the majority of the network. Since the node has independently verified all of the blocks, it can confirm each transaction and bitcoin ever spent as valid without reference to any external authority. The only block trusted is the genesis block embedded within, the rest of the trust is derived experientially and independently. A new bitcoin client can join the network and request any block, reconstructing the blockchain from the first (Genesis) block, all the way to the most recently mined block. Since each client also contains a static digital copy of the first block embedded in the source code, it can independently verify the entire blockchain. For example, a new client would request block with height "1", and verify that it is correct and contains the correct signature for block "0", the genesis block. Now, the client has bootstrapped the blockchain, independently verifying block "1", and now has a blockchain of height "1". From here, the client can request a block with height "2" from the network. If that can be validated as a valid block that can be added, then the blockchain is confirmed to height "2" etc. After a day or more, several hundred thousand blocks later, the network node can catch up and find that it has the same height as the majority of the network. Since the node has independently verified all of the blocks, it can confirm each transaction and bitcoin ever spent as valid without reference to any external authority. The only block trusted is the genesis block embedded within, the rest of the trust is derived experientially and independently.
////Should this all be covered in the Introduction or could some of this be moved to a later chapter? - AM ////
=== Finite monetary supply === Finite monetary supply
Bitcoins are "minted" during the creation of each block at a fixed and diminishing rate. Each block, generated on average every 10 imnutes, contains a _reward_ that consists of entirely new bitcoins. The reward was 50BTC for the first four years of operation of the network. Every four years the reward is decreased by 50%, resulting in a dimishing rate of issuance over time. In 2012, the reward was decreased to 25BTC and it will decrease again to 12.5BTC in 2016. By approximately 2140, the last fragments of a bitcoin will be mined, for a total of 21 million bitcoins. Bitcoins are "minted" during the creation of each block at a fixed and diminishing rate. Each block, generated on average every 10 imnutes, contains a _reward_ that consists of entirely new bitcoins. The reward was 50BTC for the first four years of operation of the network. Every four years the reward is decreased by 50%, resulting in a dimishing rate of issuance over time. In 2012, the reward was decreased to 25BTC and it will decrease again to 12.5BTC in 2016. By approximately 2140, the last fragments of a bitcoin will be mined, for a total of 21 million bitcoins.
@ -341,6 +392,8 @@ The algorithm that constrains bitcoin issuance to a geometrically decreasing cur
The finite and diminishing issuance creates a fixed monetary supply that resists inflation. Unlike a fiat currency which can be printed in infinite numbers by a central bank, bitcoin can never be inflated by printing. The finite and diminishing issuance creates a fixed monetary supply that resists inflation. Unlike a fiat currency which can be printed in infinite numbers by a central bank, bitcoin can never be inflated by printing.
////These blocks of info read like info dumps. We need to work on organization and making this more fluid for the reader. - AM ////
==== Monetary supply ==== Monetary supply
Bitcoin's monetary supply is defined as the number of coins in circulation (minted). Like any other currency, this measure of monetary supply is called M0, which represents the narrowest measure of the money supply. Just like any other currency, bitcoin can also have a _fractional reserve banking_ which means that an organization can trade bitcoins "off blockchain" which are not part of the M0 monetary measure, but of the broader monetary supply measures M1-M3. Bitcoin's monetary supply is defined as the number of coins in circulation (minted). Like any other currency, this measure of monetary supply is called M0, which represents the narrowest measure of the money supply. Just like any other currency, bitcoin can also have a _fractional reserve banking_ which means that an organization can trade bitcoins "off blockchain" which are not part of the M0 monetary measure, but of the broader monetary supply measures M1-M3.
@ -359,6 +412,8 @@ In practice, it has become evident that the hoarding instinct caused by a deflat
==== Why would I use bitcoin ==== Why would I use bitcoin
////Add text here - AM ////
===== As a merchant ===== As a merchant
Bitcoin's transaction fees are relatively flat and extremely low, compared to traditional payment networks. The current fee implementation is based on the size of a transaction's storage entry in the blockchain in bytes, with most transactions simply accepting the minimum fee of 0.5 millibits, or approximately 5 US cents at the time of writing, much lower than any other payment system. Bitcoin's transaction fees are relatively flat and extremely low, compared to traditional payment networks. The current fee implementation is based on the size of a transaction's storage entry in the blockchain in bytes, with most transactions simply accepting the minimum fee of 0.5 millibits, or approximately 5 US cents at the time of writing, much lower than any other payment system.
@ -377,6 +432,10 @@ Bitcoin is a developer's paradise. Where traditional banking and payment systems
TBD TBD
//// unfinished - AM /////
===== As an investor ===== As an investor
Bitcoin is a strange asset class. It's not exactly a commodity, a currency, a stock or a fund. It is a bit of all of those and more, an asset class unto itself. Furthermore, there are other crypto-currencies and they can be traded for each other. Crypto currencies are a whole new world of asset classes that underpin independent and low-friction online economies. Bitcoin is a strange asset class. It's not exactly a commodity, a currency, a stock or a fund. It is a bit of all of those and more, an asset class unto itself. Furthermore, there are other crypto-currencies and they can be traded for each other. Crypto currencies are a whole new world of asset classes that underpin independent and low-friction online economies.
////A lot of this reads like information that needs to be part of a different/its own chapter. The introduction should be a brief _introductory_ peak at the topic for the reader and get them up and running with the tools they will need in later chapters. There doesn't seem to be a fluidity to the topics here and headings could be moved around without making a difference. I'm interested in your introduction of the "Stories" idea (may need to change this to case study, or Bitcoin in Real Life, or something) but it seemed oddly isolated from the rest of the chapter and I didn't get a sense of how we would be coming back to it throughout the book. -AM ////