Merge branch 'develop'

ch01.asciidoc

@@ -11,7 +11,7 @@ Unlike traditional currencies, bitcoins are entirely virtual. There are no physi
 
 Bitcoin is a fully-distributed, peer-to-peer system. As such there is no "central" server or point of control. Bitcoins are created through a process called "mining", which involves looking for a solution to a difficult problem. Any participant in the bitcoin network (i.e., any device running the full bitcoin protocol stack) may operate as a miner, using their computer's processing power to attempt to find solutions to this problem. Every 10 minutes on average, a new solution is found by someone who then is able to validate the transactions of the past 10 minutes and is rewarded with brand new bitcoins. Essentially, bitcoin mining de-centralizes the currency-issuance and clearing functions of a central bank and replaces the need for any central bank with this global competition. 
  
-The bitcoin protocol includes built-in algorithms that regulate the mining function across the network.  The difficulty of the problem that miners must solve is adjusted dynamically so that, on average, someone finds a correct answer every 10 minutes regardless of how many miners (and CPUs) are working on the problem at any moment.  The protocol also halves the rate at which new bitcoins are created every 4 years, and limits the total number of bitcoins that will be created to a fixed total of 21 million coins. The result is that the number of bitcoins in circulation closely follows an easily predictable curve that reaches 21 million by the year 2140.  As a result, the bitcoin currency is deflationary and cannot be inflated by "printing" new money above and beyond the expected issuance rate. 
+The bitcoin protocol includes built-in algorithms that regulate the mining function across the network.  The difficulty of the problem that miners must solve is adjusted dynamically so that, on average, someone finds a correct answer every 10 minutes regardless of how many miners (and CPUs) are working on the problem at any moment.  The protocol also halves the rate at which new bitcoins are created every 4 years, and limits the total number of bitcoins that will be created to a fixed total of 21 million coins. The result is that the number of bitcoins in circulation closely follows an easily predictable curve that reaches 21 million by the year 2140.  Due to bitcoin's diminishing rate of issuance, over the long term, the bitcoin currency is deflationary. Furthermore, bitcoin cannot be inflated by "printing" new money above and beyond the expected issuance rate.
 
 Behind the scenes, bitcoin is also the name of the protocol, a network and a distributed computing innovation. The bitcoin currency is really only the first application of this invention. As a developer, I see bitcoin as akin to the Internet of money, a network for propagating value and securing the ownership of digital assets via distributed computation. There's a lot more to bitcoin than first meets the eye. 
 
@@ -28,7 +28,7 @@ Issuers of paper money are constantly battling the counterfeiting problem by usi
 
 When cryptography started becoming more broadly available and understood in the late 1980s, 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 were centralized and as a result they were easy to attack by governments and hackers. Early digital currencies used a central clearinghouse to settle all transactions at regular intervals, just like a traditional banking system. Unfortunately, in most cases these nascent digital currencies were targeted by worried governments and eventually litigated out of existence. Some failed in spectacular crashes when the parent company liquidated abruptly. To be robust against intervention by antagonists, whether they are legitimate governments or criminal elements, a new digital currency was needed to avoid the use of a central currency issuer or transaction clearing authority that could be a single point of attack.  Bitcoin is such a system, completely de-centralized by design, and free of any central authority or point of control that can be attacked or corrupted.
+While these earlier digital currencies worked, they were centralized and as a result they were easy to attack by governments and hackers. Early digital currencies used a central clearinghouse to settle all transactions at regular intervals, just like a traditional banking system. Unfortunately, in most cases these nascent digital currencies were targeted by worried governments and eventually litigated out of existence. Some failed in spectacular crashes when the parent company liquidated abruptly. To be robust against intervention by antagonists, whether legitimate governments or criminal elements, a de-centralized digital currency was needed to avoid a single point of attack. Bitcoin is such a system, completely de-centralized by design, and free of any central authority or point of control that can be attacked or corrupted.
 
 Bitcoin represents the culmination of decades of research in cryptography and distributed systems and includes four key innovations brought together in a unique and powerful combination. Bitcoin consists of:
  
@@ -39,9 +39,9 @@ Bitcoin represents the culmination of decades of research in cryptography and di
 
 === History of Bitcoin
 
-Bitcoin was invented in 2008 by Satoshi Nakamoto with the publication of a paper titled "Bitcoin: A Peer-to-Peer Electronic Cash System". Satoshi Nakamoto combined several prior inventions such as b-money and HashCash to create a completely de-centralized electronic cash system that does not rely on a central authority for currency issuance or settlement and validation of transactions. The key innovation was to use a Proof-Of-Work algorithm to conduct a global "election" every 10 minutes, allowing the de-centralized network to arrive at _consensus_ about the state of transactions. This elegantly solves the issue of double-spend where a single currency unit can be spent twice. Previously, the double-spend problem was a weakness of digital currency and was addressed by clearing all transactions through a central clearinghouse. 
+Bitcoin was invented in 2008 by Satoshi Nakamoto with the publication of a paper titled "Bitcoin: A Peer-to-Peer Electronic Cash System". Satoshi Nakamoto combined several prior inventions such as b-money and HashCash to create a completely de-centralized electronic cash system that does not rely on a central authority for currency issuance or settlement and validation of transactions. The key innovation was to use a distributed computation system (called a "Proof-Of-Work" algorithm) to conduct a global "election" every 10 minutes, allowing the de-centralized network to arrive at _consensus_ about the state of transactions. This elegantly solves the issue of double-spend where a single currency unit can be spent twice. Previously, the double-spend problem was a weakness of digital currency and was addressed by clearing all transactions through a central clearinghouse. 
 
-The bitcoin network started in 2009, based on a reference implementation published by Nakamoto and since revised by many other programmers. During the first four years of operation, the network has grown to include an enormous amount of Proof-Of-Work computation, thereby increasing its security and resilience. In 2013, the total market value of bitcoin's primary monetary supply measure (M0) is estimated at more than 10 billion US dollars. The largest transaction processed by the network was $150 million US dollars, transmitted instantly and processed without any fees.
+The bitcoin network started in 2009, based on a reference implementation published by Nakamoto and since revised by many other programmers. The distributed computation that provides security and resilience for bitcoin has increased exponentially and now exceeds that combined processing capacity of the world's top super-computers. Bitcoin's total market value is estimated at between 5 and 10 billion US dollars, depending on the dollar/bitcoin exchange rate. The largest transaction processed so far by the network was $150 million US dollars, transmitted instantly and processed without any fees.
 
 Satoshi Nakamoto withdrew from the public in April of 2011, leaving the responsibility of developing the code and network to a thriving group of volunteers. The name Satoshi Nakamoto is an alias and the identity of the person or people behind this invention is currently unknown. However, neither Satoshi Nakamoto nor anyone else exerts control over the bitcoin system, which operates based on fully transparent mathematical principles. The invention itself is groundbreaking and has already spawned new science in the fields of distributed computing, economics and econometrics. 
 
@@ -58,7 +58,7 @@ Satoshi Nakamoto's invention is also a practical solution to a previously unsolv
 Bitcoin is a technology, but it expresses money which 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 re-use 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 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 and basic transactions from the perspective of a retail consumer.
 
 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. 
@@ -86,7 +86,7 @@ To join the bitcoin network and start using the currency, all a user has to do i
 
 The three primary forms of bitcoin clients are:
 
-Full Client:: A full client, or "full node" is a client that stores the entire history of bitcoin transactions, manages the user's 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:: 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 user's 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:: 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. 
 

ch04.asciidoc

@@ -212,7 +212,7 @@ y = 07CF33DA18...505BDB
 
 To visualize multiplication of a point with an integer, we will use the simpler elliptic curve over the real numbers -- remember, the math is the same. Our goal is to find the multiple kG of the generator point G. That is the same as adding G to itself, k times in a row. In elliptic curves, adding a point to itself is the equivalent of drawing a tangent line on the point and finding where it intersects the curve again, then reflecting that point on the x-axis. 
 
-Starting with the generator point G, we take the tangent of the curve at G until it crosses the curve again at another point. This new point is -2G. Reflecting that point across the x-axis gives us 2G. If we take the tangent at 2G, it crosses the curve at -4G, which again we reflect on the x-axis to find G. Continuing this process, we can bounce around the curve finding the multiples of G, 2G, 4G, 8G, etc. As you can see, a randomly selected large number k, when multiplied against the generator point G is like bouncing around the curve k times, until we land on the point kG which is the public key. This process is irreversible, meaning that it is infeasible to find the factor k (the secret k) in any way other than trying all multiples of G (1G, 2G, 4G, etc) in a brute-force search for k. Since k can be an enormous number, that brute-force search would take an infeasible amount of computation and time. 
+Starting with the generator point G, we take the tangent of the curve at G until it crosses the curve again at another point. This new point is -2G. Reflecting that point across the x-axis gives us 2G. If we take the tangent at 2G, it crosses the curve at -4G, which again we reflect on the x-axis to find 4G. Continuing this process, we can bounce around the curve finding the multiples of G, 2G, 4G, 8G, etc. As you can see, a randomly selected large number k, when multiplied against the generator point G is like bouncing around the curve k times, until we land on the point kG which is the public key. This process is irreversible, meaning that it is infeasible to find the factor k (the secret k) in any way other than trying all multiples of G (1G, 2G, 4G, etc) in a brute-force search for k. Since k can be an enormous number, that brute-force search would take an infeasible amount of computation and time. 
 
 
 

ch05.asciidoc

@@ -78,7 +78,6 @@ The UTXO consumed by a transaction are called transaction inputs, while the UTXO
 
 The exception to the output and input chain is a special type of transaction called the _coinbase_ transaction, which is the first transaction in each block. This transaction is placed there by the "winning" miner and creates brand-new bitcoin payable to that miner as a reward for mining. This is how bitcoin's money supply is created during the mining process as we will see in <<mining>>.
 
-
 [TIP]
 ====
 What comes first? Inputs or outputs, the chicken or the egg? Strictly speaking, outputs come first because coinbase transactions, which generate new bitcoin, have no inputs and create outputs from nothing. 
@@ -108,6 +107,32 @@ The transaction scripting language, used in the locking script mentioned above,
 | Variable | Locking-Script | A script defining the conditions needed to spend the output
 |=======
 
+In the example below, we use the blockchain.info API to find the unspent outputs (UTXO) of a specific address:
+[[get_utxo]]
+.A script that calls the blockchain.info API to find the UTXO related to an address
+====
+[source, python]
+----
+include::code/get-utxo.py[]
+----
+====
+
+Running the script, we see a list of transaction IDs, a colon, the index number of the specific unspent transaction output (UTXO), and the value of that UTXO in Satoshis. The locking script is not shown in this output:
+
+[[get_utxo_run]]
+.Running the get-utxo.py script
+====
+[source,bash]
+----
+$ python get-utxo.py 
+ebadfaa92f1fd29e2fe296eda702c48bd11ffd52313e986e99ddad9084062167:1 - 8000000 Satoshis
+6596fd070679de96e405d52b51b8e1d644029108ec4cbfe451454486796a1ecf:0 - 16050000 Satoshis
+74d788804e2aae10891d72753d1520da1206e6f4f20481cc1555b7f2cb44aca0:0 - 5000000 Satoshis
+b2affea89ff82557c60d635a2a3137b8f88f12ecec85082f7d0a1f82ee203ac4:0 - 10000000 Satoshis
+...
+----
+====
+
 ===== Spending Conditions (Encumbrances)
 
 Transaction outputs associate a specific amount (in satoshis) to a specific _encumbrance_ or locking-script that defines the condition that must be met to spend that amount. In most cases the locking script will lock the output to a specific bitcoin address, thereby transferring ownership of that amount to the new owner. When Alice paid Bob's Cafe for a cup of coffee, her transaction created a 0.015 bitcoin output _encumbered_ or locked to the Cafe's bitcoin address. That 0.015 bitcoin output was recorded on the blockchain and became part of the Unspent Transaction Output set, meaning it showed in Bob's wallet as part of the available balance. When Bob chooses to spend that amount, his transaction will release the encumbrance, unlocking the output by providing an unlocking script containing a signature from Bob's private key. 
@@ -117,7 +142,33 @@ Transaction outputs associate a specific amount (in satoshis) to a specific _enc
 
 In simple terms, transaction inputs are pointers to UTXO. They point to a specific UTXO by reference to the transaction hash and sequence number where the UTXO is recorded in the blockchain. To spend UTXO, a transaction input also includes unlocking-scripts that satisfy the spending conditions set by the UTXO. The unlocking script is usually a signature proving ownership of the bitcoin address that is in the locking script. 
 
-When a user makes a payment, their wallet constructs a transaction by selecting from the available UTXO. For example, to make a 0.015 bitcoin payment, the wallet app may select a 0.01 UTXO and a 0.005 UTXO, using them both to add up to the desired payment amount. The wallet then produces unlocking scripts containing signatures for each of the UTXO, thereby making them spendable by satisfying their locking script conditions. The wallet adds these UTXO references and unlocking scripts as inputs to the transaction. 
+When a user makes a payment, their wallet constructs a transaction by selecting from the available UTXO. For example, to make a 0.015 bitcoin payment, the wallet app may select a 0.01 UTXO and a 0.005 UTXO, using them both to add up to the desired payment amount. 
+
+In the example below, we show the use of a "greedy" algorithm to select from available UTXO in order to make a specific payment amount. In the example, the available UTXO are provided as a constant array, but in reality, the available UTXO would be retrieved with an RPC call to Bitcoin Core, or to a third-party API as shown in <<get_utxo>>. 
+
+[[select_utxo]]
+.A script for calculating how much total bitcoin will be issued
+====
+[source, python]
+----
+include::code/select-utxo.py[]
+----
+====
+
+If we run the select-utxo.py script without a parameter it will attempt to construct a set of UTXO (and change) for a payment of 55000000 Satoshis (0.55 bitcoin). If you provide a target payment amount as a parameter, the script will select UTXO to make that target payment amount. Below, we run the script trying to make a payment of 0.5 bitcoin or 50000000 Satoshis:
+
+[[select_utxo_run]]
+.Running the select-utxo.py script
+====
+[source,bash]
+----
+$ python select-utxo.py 50000000
+For transaction amount 50000000 Satoshis (0.500000 bitcoin) use: 
+([<7dbc497969c7475e45d952c4a872e213fb15d45e5cd3473c386a71a1b0c136a1:0 with 25000000 Satoshis>, <7f42eda67921ee92eae5f79bd37c68c9cb859b899ce70dba68c48338857b7818:0 with 16100000 Satoshis>, <6596fd070679de96e405d52b51b8e1d644029108ec4cbfe451454486796a1ecf:0 with 16050000 Satoshis>], 'Change: 7150000 Satoshis')
+----
+====
+
+One the UTXO is selected, the wallet then produces unlocking scripts containing signatures for each of the UTXO, thereby making them spendable by satisfying their locking script conditions. The wallet adds these UTXO references and unlocking scripts as inputs to the transaction. 
 
 [[tx_in_structure]]
 .The structure of a transaction input
@@ -131,7 +182,7 @@ When a user makes a payment, their wallet constructs a transaction by selecting
 | 4 bytes | Sequence Number | Currently-disabled Tx-replacement feature, set to 0xFFFFFFFF
 |=======
 
-Note: The sequence number is used to override a transaction prior to the expiration of the transaction locktime, which is a feature that is currently disabled in bitcoin. Most transactions set this value to the maximum integer value (0xFFFFFFFF) and it is ignored by the bitcoin network. If the transaction has a non-zero locktime, at least one of its inputs must have a sequence number below 0xFFFFFFFF in order to enable locktime. 
+Note: The sequence number is used to override a transaction prior to the expiration of the transaction locktime, which is a feature that is currently disabled in bitcoin. Most transactions set this value to the maximum integer value (0xFFFFFFFF) and it is ignored by the bitcoin network. If the transaction has a non-zero locktime, at least one of its inputs must have a sequence number below 0xFFFFFFFF in order to enable locktime.
 
 [[tx_fees]]
 ==== Transaction Fees

ch08.asciidoc

@@ -4,11 +4,11 @@
 [[mining]]
 === Introduction - Mining and Consensus
 
-Mining is the process by which new bitcoin is added to the money supply. Mining also serves to secure the bitcoin system against fraudulent transactions or transactions spending the same amount of bitcoin more than once, known as a double-spend. Miners provide processing power to the bitcoin network in exchange for the opportunity to be rewarded bitcoin. Miners validate new transactions and recording them on the global ledger. A new block, containing transactions that occurred since the last block, is "mined" every 10 minutes, thereby adding those transactions to the blockchain. Transactions that become part of a block and added to the blockchain are considered "confirmed", which allows the new owners of bitcoin to spend the bitcoin they received in those transactions. Miners receive two types of reward for mining: new coins created with each new block and transaction fees from all the transactions included in the block. To earn this reward, the miners compete to solve a difficult mathematical problem based on a cryptographic hash algorithm. The solution to the problem, called the Proof-of-Work, is included in the new block and acts as proof that the miner expended significant computing effort. The competition to solve the Proof-of-Work algorithm to earn reward and the right to record transactions on the blockchain is the basis for bitcoin's security model. 
+Mining is the process by which new bitcoin is added to the money supply. Mining also serves to secure the bitcoin system against fraudulent transactions or transactions spending the same amount of bitcoin more than once, known as a double-spend. Miners provide processing power to the bitcoin network in exchange for the opportunity to be rewarded bitcoin. Miners validate new transactions and record them on the global ledger. A new block, containing transactions that occurred since the last block, is "mined" every 10 minutes, thereby adding those transactions to the blockchain. Transactions that become part of a block and added to the blockchain are considered "confirmed", which allows the new owners of bitcoin to spend the bitcoin they received in those transactions. Miners receive two types of reward for mining: new coins created with each new block and transaction fees from all the transactions included in the block. To earn this reward, the miners compete to solve a difficult mathematical problem based on a cryptographic hash algorithm. The solution to the problem, called the Proof-of-Work, is included in the new block and acts as proof that the miner expended significant computing effort. The competition to solve the Proof-of-Work algorithm to earn reward and the right to record transactions on the blockchain is the basis for bitcoin's security model. 
 
-The process of new coin generation is called mining, because the reward is designed to simulate diminishing returns, just like mining for precious metals. Bitcoin's money supply is created through mining, similar to how a central bank issues new money by printing bank notes. The amount of newly created bitcoin a miner can add to a block decreases approximately every four years (or precisely every 210,000 blocks). It started at 50 bitcoin per block in January of 2009 and halved to 25 bitcoin per block in November of 2012. It will halve again to 12.5 bitcoin per block sometime in 2016. Based on this formula, bitcoin mining rewards decrease exponentially until approximately the year 2140 when all bitcoin (20.99999998 million) will have been issued. After 2140, no new bitcoins are issued.
+The process of new coin generation is called mining, because the reward is designed to simulate diminishing returns, just like mining for precious metals. Bitcoin's money supply is created through mining, similar to how a central bank issues new money by printing bank notes. The amount of newly created bitcoin a miner can add to a block decreases approximately every four years (or precisely every 210,000 blocks). It started at 50 bitcoin per block in January of 2009 and halved to 25 bitcoin per block in November of 2012. It will halve again to 12.5 bitcoin per block sometime in 2016. Based on this formula, bitcoin mining rewards decrease exponentially until approximately the year 2140 when all bitcoin (20.99999998 million) will have been issued. After 2140, no new bitcoins will be issued.
 
-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 winning bitcoin miner gets to "keep the change" on the transactions included in the winning block. Today the fees represent 0.5% or less of a bitcoin miner's income, the vast majority coming from the newly minted bitcoins. However, as the reward decreases over time and the number of transactions per block increases, a greater proportion of bitcoin mining earnings will come from fees. After 2140 all bitcoin miner earnings will be in the form of transaction fees.
+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 winning bitcoin miner gets to "keep the change" on the transactions included in the winning block. Today, the fees represent 0.5% or less of a bitcoin miner's income, the vast majority coming from the newly minted bitcoins. However, as the reward decreases over time and the number of transactions per block increases, a greater proportion of bitcoin mining earnings will come from fees. After 2140, all bitcoin miner earnings will be in the form of transaction fees.
 
 The word "mining" is somewhat misleading. By evoking the extraction of precious metals, it focuses our attention on the reward for mining, the new bitcoins in each block. While mining is incentivized by this reward, the primary purpose of mining is not the reward or the generation of new coins. If you view mining only as the process by which coins are created you are mistaking the means (incentives) as a goal of the process. Mining is the main process of the de-centralized clearinghouse, by which transactions are validated and cleared. Mining secures the bitcoin system and enables the emergence of network-wide consensus without a central authority. Mining is the invention that makes bitcoin special, a de-centralized security mechanism that is the basis for peer-to-peer digital cash. The reward of newly minted coins and transaction fees is an incentive scheme that aligns the actions of miners with the security of the network, while simultaneously implementing the monetary supply. 
 
@@ -18,6 +18,29 @@ In this chapter, we will first examine mining as a monetary supply mechanism and
 
 Bitcoins are "minted" during the creation of each block at a fixed and diminishing rate. Each block, generated on average every 10 minutes, contains entirely new bitcoins, created from nothing. Every 210,000 blocks or approximately every four years the currency issuance rate is decreased by 50%. For the first four years of operation of the network, each block contained 50 new bitcoin. In November of 2012, the new bitcoin issuance rate was decreased to 25 bitcoin per block and it will decrease again to 12.5 bitcoin at block 420,000, which will be mined sometime in 2016. The rate of new coins decreases like this exponentially over 64 "halvings", until block 13,230,000 (mined approximately in year 2137) when it reaches the minimum currency unit of 1 satoshi. Finally, after 13.44 million blocks, in approximately 2140, all 2,099,999,997,690,000 satoshis, or almost 21 million bitcoin will be issued. Thereafter, blocks will contain no new bitcoin, and miners will be rewarded solely through the transaction fees.
 
+In the example code below, we calculate the total amount of bitcoin that will be issued:
+
+[[max_money]]
+.A script for calculating how much total bitcoin will be issued
+====
+[source, python]
+----
+include::code/max_money.py[]
+----
+====
+
+Running the script:
+
+[[max_money_run]]
+.Running the max_money.py script
+====
+[source,bash]
+----
+$ python max_money.py 
+Total BTC to ever be created: 2099999997690000 Satoshis
+----
+====
+
 [[bitcoin_money_supply]]
 .Supply of bitcoin currency over time based on a geometrically decreasing issuance rate
 image::images/BitcoinMoneySupply.png["BitcoinMoneySupply"]
@@ -68,10 +91,10 @@ Each node verifies every transaction against a long checklist of criteria:
 * nLockTime is less than or equal to INT_MAX
 * The transaction size in bytes is greater than or equal to 100
 * The number of signature operations contained in the transaction is less than the signature operation limit
-* Unlocking script (scriptSig) only push numbers on the stack, and the locking script (scriptPubkey) must match isStandard forms (this rejects "nonstandard" transactions)
+* The unlocking script (scriptSig) can only push numbers on the stack, and the locking script (scriptPubkey) must match isStandard forms (this rejects "nonstandard" transactions)
 * A matching transaction in the pool, or in a block in the main branch, must exist
 * For each input, if the referenced output exists in any other transaction in the pool, reject this transaction
-* For each input, look in the main branch and the transaction pool to find the referenced output transaction. If the output transaction is missing for any input, this will be an orphan transaction. Add to the orphan transactions, if a matching transaction is not already in the pool
+* For each input, look in the main branch and the transaction pool to find the referenced output transaction. If the output transaction is missing for any input, this will be an orphan transaction. Add to the orphan transactions pool, if a matching transaction is not already in the pool
 * For each input, if the referenced output transaction is a coinbase output, it must have at least COINBASE_MATURITY (100) confirmations 
 * For each input, the referenced output must exist and cannot already be spent
 * Using the referenced output transactions to get input values, check that each input value, as well as the sum, are in the allowed range of values (less than 21m coins, more than 0)

ch09.asciidoc

@@ -1,7 +1,7 @@
 [[ch9]]
-== Alternative chains, currencies, and applications
+== Alternative Chains, Currencies, and Applications
 
-Bitcoin was neither the beginning nor the end of the digital currency evolution. It came from twenty years of research in distributed systems and currencies and brought a revolutionary new technology into the space: the de-centralized consensus mechanism based on Proof-of-Work. The invention at the heart of bitcoin has ushered a wave of innovation in currencies, financial services, economics, distributed systems, voting systems, corporate governance, and contracts. 
+Bitcoin was neither the beginning nor the end of the digital currency evolution. It came from twenty years of research in distributed systems and currencies and brought a revolutionary new technology into the space: the de-centralized consensus mechanism based on Proof-of-Work. This invention at the heart of bitcoin has ushered a wave of innovation in currencies, financial services, economics, distributed systems, voting systems, corporate governance, and contracts. 
 
 In this chapter we'll examine the many offshoots of the bitcoin and blockchain inventions, the alternative chains, currencies, and applications built since the introduction of this technology in 2009.
 
@@ -11,7 +11,7 @@ With new coins introduced every day, it would be impossible not to miss some imp
 
 === A taxonomy of alternative currencies and chains
 
-Bitcoin is an open source project and its code has been used as the basis for many other software projects. The most common form of software spawned from bitcoin's source code are alternative de-centralized currencies, or _alt-coins_, which use the same basic building blocks to implement digital currencies. 
+Bitcoin is an open source project, and its code has been used as the basis for many other software projects. The most common form of software spawned from bitcoin's source code are alternative de-centralized currencies, or _alt-coins_, which use the same basic building blocks to implement digital currencies. 
 
 There are a number of protocol layers implemented on top of bitcoin's blockchain. These _meta-coins_, _meta-chains_, or _blockchain apps_ use the blockchain as an application platform or extend the bitcoin protocol by adding protocol layers. Examples include Colored Coins, Mastercoin, and Counterparty. 
 
@@ -25,7 +25,7 @@ Finally, there are a number of bitcoin contenders that offer digital currency or
 
 === Meta-Coin Platforms 
 
-Meta-coins and meta-chains are software layers implemented on top of bitcoin, either implementing a currency-inside-a-currency, or a platform/protocol overlay inside the bitcoin system. These function layers extend the core bitcoin protocol and add features and capabilities by encoding additional data inside bitcoin transactions and bitcoin addresses. The first implementations of meta-coins used various "hacks" to add meta-data to the bitcoin blockchain, such as using bitcoin addresses to encode data or using unused transaction fields (e.g. the transaction sequence field) to encode meta-data about the added protocol layer. Since the introduction of the OP_RETURN transaction scripting opcode, the meta-coins have been able to record meta-data more directly in the blockchain and most are migrating to using that instead. 
+Meta-coins and meta-chains are software layers implemented on top of bitcoin, either implementing a currency-inside-a-currency, or a platform/protocol overlay inside the bitcoin system. These function layers extend the core bitcoin protocol and add features and capabilities by encoding additional data inside bitcoin transactions and bitcoin addresses. The first implementations of meta-coins used various "hacks" to add meta-data to the bitcoin blockchain, such as using bitcoin addresses to encode data or using unused transaction fields (e.g. the transaction sequence field) to encode meta-data about the added protocol layer. Since the introduction of the OP_RETURN transaction scripting opcode, the meta-coins have been able to record meta-data more directly in the blockchain, and most are migrating to using that instead. 
 
 ==== Colored Coins
 
@@ -229,7 +229,7 @@ Gridcoin was introduced in October 2013. It supplements scrypt-based Proof-of-Wo
 
 ==== Anonymity-Focused Alt-Coins: CryptoNote, Bytecoin, Monero, Zerocash/Zerocoin, Darkcoin
 
-Bitcoin is often mistakenly characterized as "anonymous" currency. In fact, it is relatively easy to connect identities to bitcoin addresses and, using big-data analytics, connect addresses to each other to form a comprehensive picture of someone's bitcoin spending habits. Several alt-coins aim to address this directly by focusing on strong anonymity. The first such attempt is most likely _Zerocoin_, a meta-coin protocol for preserving anonymity on top of bitcoin, introduced with a paper in the 2013 IEEE Symposium on Security and Privacy. Zerocoin will be implemented as a completely separate alt-coin called Zerocash, currently in development. An alternative approach to anonymity was launched with _CryptoNote_ in a paper published in October 2013. CryptoNote is a foundational technology that is implemented by a number of alt-coin forks discussed below. In addition to Zerocash and Cryptonotes, there are several other independent anonymous coins, such as Darkcoin that use stealth addresses or transaction re-mixing to deliver anonymity.
+Bitcoin is often mistakenly characterized as "anonymous" currency. In fact, it is relatively easy to connect identities to bitcoin addresses and, using big-data analytics, connect addresses to each other to form a comprehensive picture of someone's bitcoin spending habits. Several alt-coins aim to address this issue directly by focusing on strong anonymity. The first such attempt is most likely _Zerocoin_, a meta-coin protocol for preserving anonymity on top of bitcoin, introduced with a paper in the 2013 IEEE Symposium on Security and Privacy. Zerocoin will be implemented as a completely separate alt-coin called Zerocash, currently in development. An alternative approach to anonymity was launched with _CryptoNote_ in a paper published in October 2013. CryptoNote is a foundational technology that is implemented by a number of alt-coin forks discussed below. In addition to Zerocash and Cryptonotes, there are several other independent anonymous coins, such as Darkcoin that use stealth addresses or transaction re-mixing to deliver anonymity.
 
 *Zerocoin/Zerocash*
 
@@ -241,7 +241,7 @@ CryptoNote is a reference implementation alt-coin that provides the basis for an
 
 *Bytecoin*
 
-Bytecoin was the first implementation spawned from CryptoNote, offering a viable anonymous currency based on the CryptoNote technology. Bytecoin was launched in March of 2014. Note that there was a previous alt-coin named Bytecoin with currency symbol BTE, whereas the CryptoNote-derived Bytecoin has currency symbol BCN.  Bytecoin uses the Cryptonight Proof-of-Work algorithm which requires access to at least 2 MB of RAM per instance, making it unsuitable for GPU or ASIC mining. Bytecoin inherits ring-signatures, unlinkable transactions and blockchain-analysis resistant anonymity from CryptoNote.
+Bytecoin was the first implementation spawned from CryptoNote, offering a viable anonymous currency based on the CryptoNote technology. Bytecoin was launched in July of 2012. Note that there was a previous alt-coin named Bytecoin with currency symbol BTE, whereas the CryptoNote-derived Bytecoin has currency symbol BCN.  Bytecoin uses the Cryptonight Proof-of-Work algorithm which requires access to at least 2 MB of RAM per instance, making it unsuitable for GPU or ASIC mining. Bytecoin inherits ring-signatures, unlinkable transactions and blockchain-analysis resistant anonymity from CryptoNote.
 
 * Block generation: 2 minutes
 * Total currency: 184 billion BCN

code/get-utxo.py

@@ -0,0 +1,28 @@
+# get unspent outputs from blockchain API
+
+import json
+import requests
+
+# example address
+address = '1Dorian4RoXcnBv9hnQ4Y2C1an6NJ4UrjX'
+
+# The API URL is https://blockchain.info/unspent?active=<address>
+# It returns a JSON object with a list "unspent_outputs", containing UTXO, like this:
+#{	"unspent_outputs":[
+#   {
+#     "tx_hash":"ebadfaa92f1fd29e2fe296eda702c48bd11ffd52313e986e99ddad9084062167",
+#     "tx_index":51919767,
+#     "tx_output_n": 1,
+#     "script":"76a9148c7e252f8d64b0b6e313985915110fcfefcf4a2d88ac",
+#     "value": 8000000,
+#     "value_hex": "7a1200",
+#     "confirmations":28691
+#   },
+# ...
+#]}
+
+resp = requests.get('https://blockchain.info/unspent?active=%s' % address)
+utxo_set = json.loads(resp.text)["unspent_outputs"]
+
+for utxo in utxo_set:
+    print "%s:%d - %ld Satoshis" % (utxo['tx_hash'], utxo['tx_output_n'], utxo['value'])

code/key-to-address-ecc-example.py

@@ -5,7 +5,8 @@ valid_private_key = False
 while not valid_private_key:
     private_key = bitcoin.random_key()
     decoded_private_key = bitcoin.decode_privkey(private_key, 'hex')
-    valid_private_key =  0 < decoded_private_key < bitcoin.N       
+    valid_private_key =  0 < decoded_private_key < bitcoin.N
+
 print "Private Key (hex) is: ", private_key
 print "Private Key (decimal) is: ", decoded_private_key
 
@@ -18,7 +19,8 @@ compressed_private_key = private_key + '01'
 print "Private Key Compressed (hex) is: ", compressed_private_key
 
 # Generate a WIF format from the compressed private key (WIF-compressed)
-wif_compressed_private_key = bitcoin.encode_privkey(bitcoin.decode_privkey(compressed_private_key, 'hex'), 'wif')
+wif_compressed_private_key = bitcoin.encode_privkey(
+    bitcoin.decode_privkey(compressed_private_key, 'hex'), 'wif')
 print "Private Key (WIF-Compressed) is: ", wif_compressed_private_key
 
 # Multiply the EC generator point G with the private key to get a public key point
@@ -42,11 +44,6 @@ print "Compressed Public Key (hex) is:", hex_compressed_public_key
 print "Bitcoin Address (b58check) is:", bitcoin.pubkey_to_address(public_key)
 
 # Generate compressed bitcoin address from compressed public key
-print "Compressed Bitcoin Address (b58check) is:", bitcoin.pubkey_to_address(hex_compressed_public_key)
+print "Compressed Bitcoin Address (b58check) is:", \
-
+    bitcoin.pubkey_to_address(hex_compressed_public_key)
-
-
-
-
-
 

code/max_money.py

@@ -0,0 +1,16 @@
+# Original block reward for miners was 50 BTC
+start_block_reward = 50
+# 210000 is around every 4 years with a 10 minute block interval
+reward_interval = 210000
+
+def max_money():
+    # 50 BTC = 50 0000 0000 Satoshis
+    current_reward = 50 * 10**8
+    total = 0
+    while current_reward > 0:
+        total += reward_interval * current_reward
+        current_reward /= 2
+    return total
+
+print "Total BTC to ever be created:", max_money(), "Satoshis"
+

code/select-utxo.py

@@ -0,0 +1,68 @@
+# Selects outputs from a UTXO list using a greedy algorithm.
+
+from sys import argv
+
+class OutputInfo:
+
+    def __init__(self, tx_hash, tx_index, value):
+        self.tx_hash = tx_hash
+        self.tx_index = tx_index
+        self.value = value
+
+    def __repr__(self):
+        return "<%s:%s with %s Satoshis>" % (self.tx_hash, self.tx_index,
+                                             self.value)
+
+# Select optimal outputs for a send from unspent outputs list.
+# Returns output list and remaining change to be sent to
+# a change address.
+def select_outputs_greedy(unspent, min_value):
+    # Fail if empty.
+    if not unspent:
+        return None
+    # Partition into 2 lists.
+    lessers = [utxo for utxo in unspent if utxo.value < min_value]
+    greaters = [utxo for utxo in unspent if utxo.value >= min_value]
+    key_func = lambda utxo: utxo.value
+    if greaters:
+        # Not-empty. Find the smallest greater.
+        min_greater = min(greaters)
+        change = min_greater.value - min_value
+        return [min_greater], change
+    # Not found in greaters. Try several lessers instead.
+    # Rearrange them from biggest to smallest. We want to use the least
+    # amount of inputs as possible.
+    lessers.sort(key=key_func, reverse=True)
+    result = []
+    accum = 0
+    for utxo in lessers:
+        result.append(utxo)
+        accum += utxo.value
+        if accum >= min_value:
+            change = accum - min_value
+            return result, "Change: %d Satoshis" % change
+    # No results found.
+    return None, 0
+
+def main():
+    unspent = [
+        OutputInfo("ebadfaa92f1fd29e2fe296eda702c48bd11ffd52313e986e99ddad9084062167", 1,  8000000),
+        OutputInfo("6596fd070679de96e405d52b51b8e1d644029108ec4cbfe451454486796a1ecf", 0,  16050000),
+        OutputInfo("b2affea89ff82557c60d635a2a3137b8f88f12ecec85082f7d0a1f82ee203ac4", 0,  10000000),
+        OutputInfo("7dbc497969c7475e45d952c4a872e213fb15d45e5cd3473c386a71a1b0c136a1", 0,  25000000),
+        OutputInfo("55ea01bd7e9afd3d3ab9790199e777d62a0709cf0725e80a7350fdb22d7b8ec6", 17,  5470541),
+        OutputInfo("12b6a7934c1df821945ee9ee3b3326d07ca7a65fd6416ea44ce8c3db0c078c64", 0,  10000000),
+        OutputInfo("7f42eda67921ee92eae5f79bd37c68c9cb859b899ce70dba68c48338857b7818", 0,  16100000),
+    ]
+    
+    if len(argv) > 1: 
+        target = long(argv[1])
+    else:
+        target = 55000000
+        
+    print "For transaction amount %d Satoshis (%f bitcoin) use: " % (target, target/10.0**8)
+    print select_outputs_greedy(unspent, target)
+
+if __name__ == "__main__":
+    main()
+

preface.asciidoc

@@ -5,23 +5,19 @@
 
 I first stumbled upon bitcoin in mid-2011. My immediate reaction was more or less "Pfft! Nerd money!" and I ignored it for another 6 months, failing to grasp its importance. This is a reaction which I have seen repeated among many of the smartest people I know, which gives me some consolation. The second time I came across bitcoin in a mailing list discussion, I decided to read the white paper written by Satoshi Nakamoto, to study the authoritative source and see what it was all about. I still remember the moment I finished reading those 9 pages, when I realized that bitcoin was not simply a digital currency, but a network of trust that could also provide the basis for so much more than just currencies. That realization: "This isn't money, it's a de-centralized trust network," started me on a four month journey to devour every scrap of information about bitcoin I could find. I became obsessed and enthralled, spending twelve or more hours each day glued to a screen, reading, writing, coding and learning as much as I could. I emerged from this state of fugue, more than 20 lbs lighter from lack of consistent meals, determined to dedicate myself to working on bitcoin. 
 
-Two years later, after creating a number of small startups to explore various bitcoin-related services and products, I decided that it was time to write my first book. Bitcoin was the topic that had driven me into a frenzy of creativity, consumed my thoughts and is the most exciting technology I have encountered since the Internet. It was now time to share my discovery of this amazing technology and my passion with a broader audience. This is the bitcoin book.
+Two years later, after creating a number of small startups to explore various bitcoin-related services and products, I decided that it was time to write my first book. Bitcoin was the topic that had driven me into a frenzy of creativity, consumed my thoughts and was the most exciting technology I had encountered since the Internet. It was now time to share my passion about this amazing technology with a broader audience. This is the bitcoin book.
 
 === Intended Audience
 
 This book is mostly intended for coders. If you can use a programming language, this book will teach you how cryptographic currencies work, how to use them and how to develop software that works with them. The first few chapters are also suitable as an in-depth introduction to bitcoin for non-coders - those trying to understand the inner workings of bitcoin and cryptocurrencies. The examples are illustrated in Python and on the command-line of a Unix-like operating system such as Linux. 
 
-=== Early-Release Note
+=== Github Source Code
 
-The early release version of the book is a *raw and rough draft* and will change regularly. New chapters will be added as they are drafted and there will be plenty of changes to the content, examples and diagrams. There will be factual and technical errors in the early release and some of the examples may not work or refer to obsolete versions of the code. Nevertheless, I hope you will enjoy the content and find it useful. I also hope that you will take the opportunity to "fork" the source code of the book and provide feedback by creating a pull request or submitting a patch. I present this work in the spirit of Cunningham's Law, named after the inventor of the wiki, Ward Cunningham:
+This book is available on Github, as a repository that contains the text, images and code: 
 
-_The best way to get the right answer on the Internet is not to ask a question, it's to post the wrong answer_
+https://github.com/aantonop/bitcoinbook
 
-I hope you can help me find and publish the "right answer" by the time this book is ready to print.
+Fork the book code, try the code examples, or submit corrections via Github. 
-
-The early-release source code is published on Github: https://github.com/aantonop/bitcoinbook
-
-File an "Issue", or fork, modify and create a "Pull Request" with your changes.
 
 === Why Are There Bugs On The Cover?
 
@@ -115,7 +111,7 @@ address (aka public key)::
 ((("bitcoin address")))
 ((("address", see="bitcoin address")))
 ((("public key", see="bitcoin address")))
-	A bitcoin address looks like +1DSrfJdB2AnWaFNgSbv3MZC2m74996JafV+, they always start with a one. Just like you ask others to send an email to your email address, you would ask others to send you bitcoin to your bitcoin address.
+    A bitcoin address looks like +1DSrfJdB2AnWaFNgSbv3MZC2m74996JafV+ - they consist of a string of letters and numbers starting with a "1" (number one). Just like you ask others to send an email to your email address, you would ask others to send you bitcoin to your bitcoin address.
 
 bip::
 ((("bip")))