Basics of Bitcoins and Blockchains

Introduction to Cryptocurrencies and the Technology That Powers Them

Title: Basics of Bitcoins and Blockchains
Subtitle: An introduction to Cryptocurrencies and the Technology That Powers Them
Author: Antony Lewis
Published: 2018
ISBN: 978-1-63353-800-9 (paperback)
Amazon Rating: 4.6 out of 5, 306 ratings
Purchased hard cover from Amazon UK, 7 Dec 2020 for GBP16.67 excl shipping (GBP6.29 for a pack of 3 books)

What the book is about:
A primer on cryptocurrencies (or more accurately cryptoassets, as the likes of Bitcoin and Ether don’t possess the normal properties of a currency to any significant extent) and the blockchains which comprise the public permissionless distributed ledgers, or databases, of the transactions relating to the cryptoassets. Much of his discussion revolves around the two most popular cryptoassets, Bitcoin and Ether, and their respective blockchains, the Bitcoin blockchain, and Ethereum which is the Ether blockchain.

Cryptoassets are a fairly complex domain, so I won’t try to explain what I think I understand of it from this book in a few lines. But what the author said just 10 pages from the end, he maybe should have said on page 1, being,
“Hype, technical complexity, regulatory uncertainly, and naive ‘investors’ (meaning more like gormless gamblers) hoping to make a quick buck all make for an environment ripe for fraudsters”.
Important, and makes sense to those with a world-view based on reality.
Here’s a link to the most recent fraud case that I’m aware of:
https://www.nasdaq.com/articles/uk-man-ordered-to-pay-more-than-%24571m-for-fraudulent-bitcoin-trading-scheme%3A-cftc-2021-03

But I will try to relate a few interesting facts about cryptoassets and their associated blockchains, as explained by Mr. Lewis.

He asserts that a very large proportion of the entire Bitcoin ecosystem is controlled by Chinese interests. And by that, I would read the authoritarian Chinese Communist Party. Mr. Lewis identifies the key business entities involved. I have no way to verify this assertion, but I would be concerned if I were considering buying into Bitcoin, or currently had a significant stake.

Cryptocurrencies are accepted in exceedingly few commercial or retail transactions, hence one of the reasons it shouldn’t be considered a ‘currency’.

There is no current credible or well-established method to value cryptoassets – their price is wildly volatile, driven by speculation, and the hype Mr. Lewis refers to.

The creation of Bitcoin and Ether cryptoassets is governed and limited through an immutable cryptographic digital process known as ‘mining’ which is carried out by ‘miners’, who are part of the blockchain system. This mining is a competition between the miners on the blockchain, as they get a cryptoasset reward for adding valid blocks to the blockchain. It is a computerised process currently requiring immensely powerful and wasteful processing power. It involves packaging cryptographically validated transactions into defined parameter ‘blocks’ and linking each ‘block’ to the previous block through a unique cryptographic fingerprint from the previous block known as a ‘hash’, and then presenting each block to the other blockchain nodes for verification. If verified by all the blockchain nodes the new block is appended to the top of the blockchain, with the cryptographic hash link to the preceding block. Hence the term ‘blockchain’. The software and protocols that govern the particular blockchain place a ceiling on the amount of Bitcoins or Ether that can be created. So supply is limited, broadly.

Cryptoassets and the associated blockchains are secured within a system known as Public Key Infrastructure, or PKI for short. This involves exceedingly complex and virtually uncrackable cryptographic processes which rely on the use of an immensely long, unique, cryptographically matched key pair, public key and associated private key, for each user. The public key could be considered the user’s public blockchain address, and the private key is ‘The Keys To The Castle’, so to speak. In conjunction with the matching public key, it proves the identity of the user and authorises cryptoasset transactions on the blockchain by the user. Lose the private key and you’ve lost your cryptoassets, gone for good, no way back! The private key also ensures the integrity of the transaction and the identity of the user (in jargonistic terms, imparts the property of non-repudiation – the user cannot deny making the transaction, or ‘double-spend’ the cryptoasset again later), as it only works in conjunction with the user’s uniquely specific public key. In other words, malicious or accidental tampering or identity spoofing immediately becomes evident to the entire blockchain, and the transaction will be rejected by the blockchain during the mining process.

The digital Bitcoin or Ethereum wallets that owners set up don’t contain the actual cryptoassets. The wallets only contain the private cryptographic keys (the wallet owner’s secret ‘password’ to identify and authenticate, and enable cryptographically secure transactions by the owner) to the cryptographic assets owned by the wallet holder. The other part of that puzzle is the wallet owner’s public cryptographic keys, which in effect is the owner’s ‘public’ address on the blockchain, as mentioned earlier. The actual cryptoassets are recorded on each and every node of the blockchain, and verified cryptographically by all the nodes on the blockchain.

There are no trusted 3rd party intermediaries or government regulatory bodies involved, or need be involved, in a cryptoasset transaction (buy-sell), such as banks or other traditional financial institutions. The blockchain executes buy-sell transactions between counterparties anywhere in the world automatically and securely through the blockchain software and cryptographic protocols. Buyers and sellers interact via Cryptocurrency Exchanges. There have been many hacks of cryptocurrency exchanges in the past, costing cryptoasset holders many many $millions. Mr. Lewis presents some of the better-known cases.

The book also contains quite a bit of waffle and padding about skippable topics I’m not at all interested in, such as the history of money, banking processes, investment concepts, etc. But I suppose it does help build out the overall scenario for those with the time and patience to try to digest it.

The still-anonymous Satoshi Nakamoto, the founder of Bitcoin, and Vitalik Buterin, the founder of Ethereum, have both written white papers on their particular brain-children. These are readily accessible online.

Why Selected:
I wanted to broaden my knowledge in this area as some time back I was involved in a cryptography course which touched on these technologies. The Ethereum blockchain and the underlying application for creating an Ethereum blockchain, protocols and nodes, Geth, is particularly interesting. The Ethereum blockchain is capable not only of supporting cryptoassets, in this case Ether, but also smart contracts via a built-in programming language. Ethereum can also be the basis of private blockchains and is of great interest in financial services since it has the potential to vastly reduce intermediation costs and time delays. Hence it is much more advanced and widely applicable than the Bitcoin blockchain.

Content and Style:
The book is well-written in relatively plain and jargon-free (or at least explained) English. The graphics in the book are for the most part awful though, just screengrabs shrunk down to be almost illegible. Ridiculous – the author and publishers really dropped the ball on this, and also on the fact there is no index. Almost as bad as forgetting to put the icing on the Christmas cake! Simple automated feature in a word processor! Guys, please!

Overall opinion:
I’d have to give it 4-stars for broad content, but the awful illustrations and graphics, and lack of an index would justify reducing that to 3. But it’s a worthwhile contribution to the knowledge-base, so I’ll leave it at 4!

Recommended?
Yes, probably. It may appeal most to those looking for foundational knowledge in the cryptocurrency space. Expecting an ‘exciting’ read would probably be unreasonable in a case like this.

Book Ratings in General
I don’t feel this book justifies its 4.5/5 Amazon rating, or its 4.09/5 Goodreads rating. I’ve become a little sceptical about book ratings and rating methods from businesses like Amazon, etc. I think it’s clear the system can be, and is, gamed to a significant extent. I feel between 3 and 3.5 is a more accurate general rating for this book.