ch1 stuff and code example

.gitignore

@@ -1,3 +1,4 @@
 *.html
 *.txt
 ch00.xml
+book.xml

ch00.asciidoc

@@ -3,13 +3,10 @@
 
 === What is Bitcoin?
 
-Bitcoin is digital money, a currency for and of the Internet. More specifically, bitcoin is digital cash, the value itself encoded digitally and transferred from owner to owner. 
+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.
 
-++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
-Other money is digital too, but different - third party, counterparty risk. 
-++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
 
-It is not owned or controlled by any company, group or country. It exists as a set of standards and reference software and as a running network with several thousand nodes worldwide. Behind the scenes, bitcoin is a network, a protocol, a standard and a currency. For now think of it simply as digital money that can be sent, received and stored by anyone, worldwide simply by downloading compatible software and joining a network. 
+Bitcoin is not owned or controlled by any company, group or country. It exists as a set of standards and reference software and as a running network with several thousand nodes worldwide. Behind the scenes, bitcoin is a network, a protocol, a standard and a currency. For now think of it simply as digital money that can be sent, received and stored by anyone, worldwide simply by downloading compatible software and joining a network. 
 
 
 Under the hood, bitcoin is the culmination of decades of research in cryptography and distributed systems and represents four key innovations brought together in a unique and powerful combination. Bitcoin consists of a de-centralized peer-to-peer network, a public transaction ledger, a de-centralized mathematical and deterministic currency issuance, a de-centralized transaction verification system and a set of powerful APIs. All of these are "bitcoin", and each of these aspects of bitcoin will be examined in this book.
@@ -76,7 +73,7 @@ Chart of decreasing issuance over time
 
 ==== Transactions
 
-People can pay for goods and services using bitcoin as the currency. 
+People can pay for goods and services using bitcoin as the currency. mg
 
 Bitcoin transactions, which transfer value from one bitcoin address to another, are recorded in a distributed ledger, called the _blockchain_. In simple terms, think of the ledger as a book with lines like this:
 
@@ -144,10 +141,22 @@ For the purposes of following the examples in this book, we recommend you downlo
 
 ==== Obtaining the bitcoin software
 
-===== Reference Client
+===== Reference Client (bitcoind, bitcoin-qt)
 
 Versions for Windows, Mac, Linux and source code can be found at link:$$http://bitcoin.org/en/download$$[]
 
+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 - The Graphical User Interface, during the blockchain initialization
+image::images/bitcoin-qt-firstload.png["bitcoin-qt first run"]
+
+
+[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.
+============================================================================
+
 ===== Mobile client
 
 On Android, you can find many bitcoin clients by searching for "bitcoin wallet" in the official application market. The most notable are:
@@ -234,4 +243,4 @@ Bitcoin represents a new frontier, and they need everything (quote)
 
 ===== As an investor
 
-Bitcoin is a strange assrt 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.

ch01.asciidoc

@@ -41,8 +41,158 @@ genesis.nNonce = 2083236893;
 <3> Unix time equivalent to - Sat, 03 Jan 2009 18:15:05 UTC
 ====
 
-=== Bitcoin mining
+=== Bitcoin Proof-of-Work (Mining)
+
+Bitcoin is secured through computation and consensus. For a new block of transactions to be added to the network, someone must first find a solution to a specific mathematical problem called the _proof of work_. Bitcoin's proof-of-work algorithm is based on the Secure Hash Algorithm (SHA-256) and consists of trying to generate a block whose hash is less than a specific number. Let's see how this works in practice.
+
+A hashing algorithm is a cryptographic function that takes an arbitrary length input (a text message or binary file), and produce a fixed-size output called the _hash_ or _digest_. It is trivial to verify the hash of any input, but it is computationally infeasible to predict or select an input to produce a desired hash. It's a one-way function, so it can easily work one way but is impossible to reverse. 
+
+With SHA-256, the output is always 256 bits long, regardless of the size of the input. In the example below, we will use the Python interpreter to calculate the SHA256 hash of the phrase "I am Satoshi Nakamoto". 
+
+[[sha256_example1]]
+.SHA256 Example
+====
+[source, python]
+----
+$ python <1>
+Python 2.7.1 (r271:86832, Jul 31 2011, 19:30:53) 
+[GCC 4.2.1 (Based on Apple Inc. build 5658) (LLVM build 2335.15.00)] on darwin
+Type "help", "copyright", "credits" or "license" for more information.
+
+>>> import hashlib <2>
+>>> print hashlib.sha256("I am Satoshi Nakamoto").hexdigest() <3>
+5d7c7ba21cbbcd75d14800b100252d5b428e5b1213d27c385bc141ca6b47989e <4>
+
+----
+<1> Start the python interpreter
+<2> Python's hashlib package provides hashing algorithms
+<3> The python command to show the hash of our example phrase
+<4> The resulting hash, in hexadecimal notation
+====
+
+The example shows that if we calculate the hash of the phrase +"I am Satoshi Nakamoto"+, it will produce +5d7c7ba21cbbcd75d14800b100252d5b428e5b1213d27c385bc141ca6b47989e+. This 256-bit number is the _hash_ or _digest_ of the phrase and depends on every part of the phrase. Adding a single letter, punctuation mark or any character will produce a different hash.
+
+Now, if we vary the phrase, we will expect to see completely different hashes. Let's try that by adding a number to the end of our phrase:
+
+[[sha256_example2]]
+.SHA256 Iterating on a Nonce
+====
+[source, python]
+----
+>>> print hashlib.sha256("I am Satoshi Nakamoto1").hexdigest()
+f7bc9a6304a4647bb41241a677b5345fe3cd30db882c8281cf24fbb7645b6240
+>>> print hashlib.sha256("I am Satoshi Nakamoto2").hexdigest()
+ea758a8134b115298a1583ffb80ae62939a2d086273ef5a7b14fbfe7fb8a799e
+>>> print hashlib.sha256("I am Satoshi Nakamoto3").hexdigest()
+bfa9779618ff072c903d773de30c99bd6e2fd70bb8f2cbb929400e0976a5c6f4
+>>> print hashlib.sha256("I am Satoshi Nakamoto4").hexdigest()
+bce8564de9a83c18c31944a66bde992ff1a77513f888e91c185bd08ab9c831d5
+>>> print hashlib.sha256("I am Satoshi Nakamoto5").hexdigest()
+eb362c3cf3479be0a97a20163589038e4dbead49f915e96e8f983f99efa3ef0a
+>>> print hashlib.sha256("I am Satoshi Nakamoto6").hexdigest()
+4a2fd48e3be420d0d28e202360cfbaba410beddeebb8ec07a669cd8928a8ba0e
+>>> print hashlib.sha256("I am Satoshi Nakamoto7").hexdigest()
+790b5a1349a5f2b909bf74d0d166b17a333c7fd80c0f0eeabf29c4564ada8351
+>>> print hashlib.sha256("I am Satoshi Nakamoto8").hexdigest()
+702c45e5b15aa54b625d68dd947f1597b1fa571d00ac6c3dedfa499f425e7369
+>>> print hashlib.sha256("I am Satoshi Nakamoto9").hexdigest()
+7007cf7dd40f5e933cd89fff5b791ff0614d9c6017fbe831d63d392583564f74
+>>> print hashlib.sha256("I am Satoshi Nakamoto10").hexdigest()
+c2f38c81992f4614206a21537bd634af717896430ff1de6fc1ee44a949737705
+>>> print hashlib.sha256("I am Satoshi Nakamoto11").hexdigest()
+7045da6ed8a914690f087690e1e8d662cf9e56f76b445d9dc99c68354c83c102
+>>> print hashlib.sha256("I am Satoshi Nakamoto12").hexdigest()
+60f01db30c1a0d4cbce2b4b22e88b9b93f58f10555a8f0f4f5da97c3926981c0
+>>> print hashlib.sha256("I am Satoshi Nakamoto13").hexdigest()
+0ebc56d59a34f5082aaef3d66b37a661696c2b618e62432727216ba9531041a5
+----
+====
+
+Each phrase produces a completely different hash result. They seem completely random, but you can re-produce the exact results in this example on any computer with Python and see the same exact hashes. 
+
+To make a challenge out of this algorithm, let's set an arbitrary target: find a phrase starting with "I am Satoshi Nakamoto" which produces a hash that starts with a zero. In numerical terms, that means finding a hash value that is less than +0x1000000000000000000000000000000000000000000000000000000000000000+. Fortunately, this isn't so difficult! If you notice above, we can see that the phrase "I am Satoshi Nakamoto13" produces the hash 0ebc56d59a34f5082aaef3d66b37a661696c2b618e62432727216ba9531041a5, which fits our criteria. It only took 13 attempts to find it. 
+
+Bitcoin's proof-of-work is very similar to the problem above. First, a miner will generate a new block, containing:
+
+* Transactions waiting to be included in a block
+* The hash from the previous block
+* A _nonce_
+
+The only part a miner can modify is the nonce. Now, the miner will calculate the hash of this block's header and see if it is smaller than the current _target difficulty_. The miner will likely have to try many nonces before finding one that results in a low enough hash. 
+
+A very simplified proof-of-work algorithm is implemented in Python here:
+
+[[pow_example1]]
+.Simplified Proof-Of-Work Implementation
+====
+[source, python]
+----
+include::code/proof-of-work-example.py[]
+----
+====
+
+Running the code above, you can set the desired difficulty (in bits, how many of the leading bits must be zero) and see how long it takes for your computer to find a solution. In the following examples, you can see how it works on an average laptop:
+
+[[pow_example_outputs]]
+.Running the proof-of-work example for various difficulties
+====
+[source, shell]
+----
+$ python proof-of-work-example.py
+
+Difficulty: 0
+Starting search...
+Success with nonce 0
+Hash is 98cd2f814c0ed03661dbc058fa129225b321e9a04a2533b214741c52efa21381
+Elapsed Time: 0.00 seconds
+Hashing Power: 0 hashes per second
+
+Difficulty: 4
+Starting search...
+Success with nonce 3
+Hash is 1fde99fb8d1e48daaa231c16d1e69e979cd6e8808111e720d78c0adba2c56a34
+Elapsed Time: 0.00 seconds
+Hashing Power: 31223 hashes per second
+
+Difficulty: 8
+Starting search...
+Success with nonce 17
+Hash is 0174309cb459c93ff5fb21f7b3e6869d36ea20abb6c18ff1dda1dc9b4c93ecf4
+Elapsed Time: 0.00 seconds
+Hashing Power: 76505 hashes per second
+
+Difficulty: 12
+Starting search...
+Success with nonce 9945
+Hash is 0010738d68590778770be0211d0e17a66979fd435d778b64400c0b97c5fe0c7b
+Elapsed Time: 0.06 seconds
+Hashing Power: 155838 hashes per second
+
+Difficulty: 16
+Starting search...
+Success with nonce 41807
+Hash is 00010a05e26c4cefd0c7bb1591f90870009212645f9cd4a7b8e7d0dfaafcc757
+Elapsed Time: 0.24 seconds
+Hashing Power: 176696 hashes per second
+
+Difficulty: 20
+Starting search...
+Success with nonce 840322
+Hash is 000005a5312680389e451a65fed9c3885bfe35afb446a0971d5c13ce471c3712
+Elapsed Time: 4.69 seconds
+Hashing Power: 179120 hashes per second
+
+----
+====
+
+
+At the time of writing this, the network is attempting to find a block whose header hash is less than +000000000000004c296e6376db3a241271f43fd3f5de7ba18986e517a243baa7+. As you can see, there are a lot of zeroes at the beginning of that hash, meaning that the acceptable range of hashes is much smaller, hence more difficult to find a valid hash. It will take on average more than 10 minutes of searching at more than 500 trillion hash calculations per second for the network to discover the next block. 
+
+
 === Transaction Fees
+
+
+
 === Currency exchange
 
 [[complex_transactions]]

code/proof-of-work-example.py

@@ -0,0 +1,45 @@
+
+# example of proof-of-work algorithm
+
+import hashlib
+import time
+
+max_nonce = 1000000000  # 1 billion
+
+def proof_of_work(header, difficulty):
+    
+    target = 2<<(256-difficulty)
+    
+    for nonce in xrange(max_nonce):
+        hash_result = hashlib.sha256(str(header)+str(nonce)).hexdigest()
+        
+        if long(hash_result, 16) < target:
+            print "Success with nonce %d" % nonce
+            print "Hash is %s" % hash_result
+            return nonce
+            
+    print "Failed after %d (max_nonce) tries" % nonce
+    return nonce
+
+    
+if __name__ == '__main__':
+    
+    difficulty = 24
+    
+    print "Difficulty: %d" % difficulty
+    
+    print "Starting search..."
+    start_time = time.time()
+    
+    nonce = proof_of_work('test header', difficulty) # 5 bits of difficulty
+    
+    end_time = time.time()
+    elapsed_time = end_time - start_time
+    print "Elapsed Time: %.2f seconds" % elapsed_time
+    
+    if elapsed_time > 0:
+        hash_power = float(long(nonce)/elapsed_time)
+        print "Hashing Power: %ld hashes per second" % hash_power
+    
+    
+