Bitcoin for Nonmathematicians:. Slava Gomzin

problems.

      So it’s safe to say that if you understand the cryptography behind bitcoin, then you know how bitcoin and other cryptocurrencies work, so you can trust them.

      Part I

      From Coins to Crypto

      In This Part

       Chapter 1: Traditional Money

       Chapter 2: Digital Gold

       Chapter 3: Centralized Digital Payments

       Chapter 4: Cryptocurrencies

      Chapter 1

      Traditional Money

      Money is like muck, not good except it be spread

      —Francis Bacon

      Many books start telling their stories ab ovo,1 and this book is no exception. One can say that bitcoins are created from thin air. While perhaps it’s true, the idea wasn’t born in a vacuum. There was life before bitcoin, and its daring ancestors helped to build a foundation for what we recognize today as cryptocurrency. Learning more about the history of traditional and digital money and payment methods might help us to understand the common rules of the game and predict the challenges facing cryptocurrencies.

      This book does not pretend to be a full reference on bitcoin design and implementation, but rather focuses on cryptography. However, it would be reckless to discuss other aspects of cryptocurrencies without reviewing its implementation, and especially without comparing this design with other cashless payment implementations, such as plastic cards.

Commodities versus Gold

      Money. Everyone knows what it is, at least its practical application. It all began with barter, when people were exchanging their products with each other for goods and services. For a very long time barter was the only way to sell or buy. But at some point, people realized that barter was limited and inconvenient. For example, I have oranges that I want to sell, and I need to buy some apples. But the apple seller doesn’t need oranges, so I can’t buy his apples. In this situation, I need to exchange my oranges for something that would satisfy the apple seller as a medium of exchange for his apples. This something can be a commodity—goods that are useful to many people and that can be easily and willingly swapped for other goods and services. So commodities became the first money. For some time, many different societies were happy using commodities, such as cocoa beans in Abyssinia or iron nails in Scotland, as money.2