Bitcoin, Blockchain, and Cryptoassets: A Comprehensive Introduction

by Fabian Schar, Aleksander Berentsen

Overview

An introduction to cryptocurrencies and blockchain technology; a guide for practitioners and students.

Bitcoin and blockchain enable the ownership of virtual property without the need for a central authority. Additionally, Bitcoin and other cryptocurrencies make up an entirely new class of assets that have the potential for fundamental change in the current financial system. This book offers an introduction to cryptocurrencies and blockchain technology that begins from the perspective of monetary economics.

The book first presents a nontechnical discussion of monetary theory, enabling readers to understand how cryptocurrencies are a radical departure from existing monetary instruments, and provides an overview of blockchain technology and the Bitcoin system. It then takes up technical aspects of Bitcoin in more detail, covering such topics as the Bitcoin network, its communications protocol, the mathematics underpinning decentralized validation, transaction types, the data structure of blocks, the proof-of-work consensus mechanism, and game theory. Finally, the book discusses specific issues and applications, including price volatility, regulatory uncertainty, and central bank cryptocurrencies, as well as such alternative applications as decentralized verification and attestation, tokens, and smart contracts. The concluding chapter offers practical advice on getting started with Bitcoin. End-of-chapter exercises allow readers to test their knowledge. Bitcoin, Blockchain, and Cryptoassets is suitable for classroom use and as a reference for practitioners.

Product Details

ISBN-13:	9780262539166
Publisher:	MIT Press
Publication date:	09/01/2020
Pages:	384
Product dimensions:	7.00(w) x 8.90(h) x 0.70(d)

About the Author

Fabian Schär is Professor of Blockchain, Distributed Ledger Technology, and Fintech at the University of Basel and Director of the Center for Innovative Finance.

Aleksander Berentsen is Professor of Economic Theory at the Faculty of Business and Economics at the University of Basel and Chairman of the Board of the Center for Innovative Finance.

Table of Contents

Preface vii

I Introduction

1 The Context of Monetary Theory 3

1.1 Origin of a Monetary Unit 5

1.2 Functions of a Monetary Unit 5

1.3 Fundamental Properties of Money 8

1.4 Monetary Value 9

1.5 Monetary Control Structures 13

1.6 Exercises 28

2 Bitcoin Overview 31

2.1 Classification of Bitcoin 31

2.2 Bitcoin Components: An Overview 33

2.3 Bitcoin's Unique Selling Proposition 34

2.4 Bitcoin's Technology: A Primer 36

2.5 Origin and Governance 46

2.6 Exercises 65

II Technical Analysis

3 Transactional Capacity 69

3.1 Bitcoin Network 69

3.2 Extended Network 75

3.3 Bitcoin Communication Protocol 78

3.4 Exercises 81

4 Transactional Legitimacy 83

4.1 Pseudonyms 83

4.2 Hash Functions 98

4.3 Signatures 100

4.4 Transactions 117

4.5 Script Conditions 122

4.6 Signature Hash Type 129

4.7 Segregated Witness (SegWit) 130

4.8 Exercises 138

5 Transactional Consensus 139

5.1 Blocks and the Blockchain 139

5.2 Consensus Protocol 146

5.3 Bitcoin Mining: Incentives and Examples 155

5.4 Exercises 170

III Further Remarks

6 Bitcoin's Challenges 175

6.1 Price Volatility 175

6.2 Scalability 194

6.3 Adoption 209

6.4 Political Challenges 218

6.5 Exercises 222

7 Further Applications 223

7.1 Decentralized Verification and Attestation 223

7.2 Tokens and Colored Coins 225

7.3 Smart Property 226

7.4 Blockchain Contracts (Smart Contracts) 228

7.5 Exercises 233

8 Practical Guidelines for Bitcoin 235

8.1 Procurement 235

8.2 Storage 240

8.3 Payments 246

8.4 Exercises 250

References 251

Index 269

Editorial Reviews

"This terrific book lucidly explains the key components of Bitcoin and blockchain, including hashing, public key cryptography, and smart contracts, embedded in an excellent presentation of key concepts from monetary economics and discussion of recent challenges for cryptocurrencies and central bank digital currencies. If you are looking for one book on this topic, this is it."
– Harald Uhlig, Bruce Allen and Barbara Ritzenthaler Professor in Economics and the College, University of Chicago

"Bitcoin made a big splash in the financial world. This accessible book is an excellent introduction to both monetary theory and crypto technology."
– Markus K. Brunnermeier, Edwards S. Sanford Professor of Economics, Princeton University

From the Publisher