Bitcoin pieces

It has been a volatile month for the world’s most popular experimental currency:

As you can see(1), the U.S. dollar — measured in milli-bitcoins — has been highly unstable. In Felix Salmon’s words:

[The dollar] is clearly not an effective store of wealth — just look at how quickly that wealth can be evaporated. [...]

Want to publish a paper about Bitcoin?

(Warning: This time it was a couple of beers.)

If you are a post-doc in Economics, here is an idea for a paper: The economics of Bitcoin mining.

You can open with a little summary of the Bitcoin network, SHA-256 hashing, etc., just to show you did your homework.

Here is the deal. There is [...]

Bitcoin part 10: The network

This is a continuation of the previous installment on “proof of work”.

Obviously, Bitcoin “miners” do not actually know everything. What they do know is the same thing every Bitcoin client knows: what they hear from the Bitcoin network. Such peer-to-peer (P2P) networks are nothing new; if you ever used Napster or BitTorrent, you have [...]

Bitcoin part 9: How proofs of work work

Want to see the most important line in the Bitcoin source code? Here it is:

return [...]

Bitcoin makes journalists say stupid things

The problem with this topic — unlike, say, how Bitcoin works — is that there’s just too much material to cover.

Let’s start with Felix (h/t Moldbug):

In reality, then, bitcoin doesn’t really behave like a currency at all. In terms of its market value, it looks much more like a highly-volatile commodity. That’s by [...]

Bitcoin part 8: Big numbers

(Warning: Again I have indulged in a bit of wine.)

Before attempting to tackle the block chain, I feel the need to atone for the deadly sin of understatement. (You remember the seven deadly sins, right? Understatement, Exaggeration, False Analogy, Non Sequitur, Affirming the Consequent, Reification, and… Oh, crud, I always forget the last one.)

[...]

Bitcoin part 7: Transactions

(By a timely coincidence, the total value of all Bitcoins in the world first exceeded $1 billion this week.)

Enough intellectual wanderlust. Let’s build Bitcoin.

First, we need a digital signature scheme. This is just a template for creating individual, unique trapdoor one-way functions, where each unique function is defined by a value called its [...]

Bitcoin part 6: Digital Signatures

It is time to introduce the most important application of trapdoor one-way functions: Digital signatures. (Be sure to have read at least part 3 and part 5.)

Suppose you want to send me a message, but (1) I am very far away and (2) we have an enemy who wants to pretend to be you. [...]

Bitcoin part 5: More Cryptography

Let’s see if we can get this train of thought back on the rails.

A previous installment introduced one-way functions and trapdoor one-way functions. Make sure you have internalized that because this will build on it.

One-way functions have many uses, and I want to discuss a few, starting with a simple example. Suppose you [...]

Bitcoin part 4: Number Theory

First, the bad news: This will be the longest and most mathematical installment in the series. The good news: You can skip it entirely and not miss anything, because this is almost entirely unrelated to Bitcoin. But I feel like writing about it.

This is a detour from the detour. I want to walk through [...]