This book covers blockchain from the underlying principles to how it enables applications to survive and surf on its shoulder. Having covered the fundamentals of blockchain, the book turns to cryptocurrency. It thoroughly examines Bitcoin before presenting six other major currencies in a rounded discussion. The book then bridges between technology and finance, concentrating on how blockchain-based applications, including cryptocurrencies, have pushed hard against mainstream industries in a bid to cement their positions permanent. It discusses blockchain as underlying banking technology, crypto mining and offering, cryptocurrency as investment instruments, crypto regulations, and markets.

Table of Contents:
Contents List of Figures...............................................................................................xix List of Tables................................................................................................xxv Section I □BLOCKCHAIN AND BIT COIN 1 Introduction to Blockchain.....................................................................3 1.1 The Birth of Bitcoin............................................................................3 1.1.1 A Mysterious Scientist............................................................4 1.1.2 What is Bitcoin?.....................................................................4 1.1.3 Double-Spending Problem.....................................................5 1.1.4 Nakamotos Solution..............................................................6 1.2 Blockchain..........................................................................................7 1.2.1 Motivation.............................................................................7 1.2.2 Definition of Blockchain........................................................8 1.2.3 Distributed Ledger.................................................................8 1.2.4 Key Properties........................................................................9 1.3 Architectural Overview....................................................................10 1.3.1 Centralised vs Decentralised Architecture...........................10 1.3.2 Peer-to-Peer Network...........................................................11 1.3.3 Characteristics.....................................................................13 1.4 Block................................................................................................14 1.4.1 Structure..............................................................................14 1.4.2 Block Identifier and Height..................................................15 1.4.3 Genesis Block.......................................................................16 1.5 Mining.............................................................................................16 1.5.1 What is Mining?..................................................................16 1.5.2 Consensus............................................................................16 1.5.3 Incentivisation.....................................................................17 1.6 Forks................................................................................................17 1.6.1 When Does a Fork Occur?...................................................17 1.6.2 Types of Forks......................................................................18 1.7 Consensus Mechanisms....................................................................18 1.7.1 Proof of Work (PoW)...........................................................18 1.7.2 Alternative Consensus Algorithms.......................................19 1.7.3 Comparison.........................................................................20 1.8 Types of Blockchains........................................................................21 1.8.1 Public and Private Blockchains............................................21 1.8.2 Consortium, Shared Ledger, Sidechain................................21 1.8.3 Hybrid Blockchains.............................................................22 1.8.4 Comparison.........................................................................22 1.9 Applications......................................................................................23 1.10 Revisiting the Double-Spending Problem.........................................26 1.11 Summary..........................................................................................26 2 Immutability of Blockchain..................................................................27 2.1 Cryptography...................................................................................27 2.1.1 What is Cryptography and Cryptanalysis?...........................28 2.1.2 Background.........................................................................28 2.1.3 Basic Concepts.....................................................................29 2.2 Modern Cryptography......................................................................30 2.2.1 Symmetric-Key Cryptography.............................................31 2.2.2 Public-Key Cryptography....................................................33 2.3 Cryptographic Applications..............................................................36 2.3.1 TLS and SSL........................................................................36 2.3.2 Cryptographic Hash Function.............................................37 2.3.3 Digital Signature..................................................................38 2.4 Elliptic Curve Cryptography (ECC).................................................41 2.4.1 Basic Concept......................................................................41 2.4.2 Public and Private Keys....................................................... 42 2.4.3 How Does ECC Compare to RSA?......................................43 2.5 Making Blockchain Immutable....................................................... 44 2.5.1 Block and Block Header..................................................... 44 2.5.2 Timestamp.......................................................................... 44 2.5.3 Merkle Tree.........................................................................45 2.5.4 Building the Chain..............................................................45 2.6 Summary..........................................................................................48 3 Consensus Mechanisms of Blockchain..................................................49 3.1 Distributed Systems and Consensus.................................................49 3.1.1 Distributed Systems.............................................................50 3.1.2 Coordination and Agreement..............................................50 3.1.3 Consensus............................................................................51 3.2 Byzantine Generals Problem.............................................................52 3.2.1 Two Generals Paradox..........................................................52 3.2.2 Byzantine Generals Problem................................................53 3.2.3 Byzantine Fault Tolerance....................................................55 3.3 Blockchain’s Consensus Mechanism.................................................56 3.3.1 Hashcash Proof of Work......................................................56 3.3.2 Proof of Work in Blockchain...............................................57 3.3.3 BFT in Blockchain...............................................................58 3.4 Solving the Double-Spending Problem.............................................59 3.5 Summary..........................................................................................60 4 Bitcoin: World’s First Cryptocurrency..................................................61 4.1 What is Bitcoin?...............................................................................61 4.2 Brief History of Bitcoin....................................................................63 4.2.1 Before Bitcoin......................................................................63 4.2.2 Bitcoin Era.......................................................................... 64 4.3 Token: BTC.................................................................................... 64 4.3.1 Bitcoin Mining and Supply..................................................65 4.3.2 Units of Bitcoin................................................................... 66 4.4 Bitcoin’s Blockchain........................................................................ 66 4.4.1 Block Header.......................................................................67 4.4.2 Timestamp...........................................................................67 4.4.3 Merkle Tree.........................................................................67 4.4.4 Hash Generation..................................................................68 4.4.5 Genesis Block.......................................................................68 4.5 Bitcoin Address.................................................................................69 4.5.1 Formats................................................................................71 4.5.2 Hash Generation..................................................................72 4.5.3 Address Structure.................................................................72 4.6 Transactions.....................................................................................73 4.6.1 Input and Output................................................................74 4.6.2 Redeeming Tokens.............................................................. 77 4.6.3 Multi-Signature...................................................................78 4.6.3.1 Escrow..................................................................78 4.6.3.2 Cold Storage.........................................................78 4.6.4 Generation Transaction.......................................................79 4.6.5 Storing Data........................................................................79 4.6.6 Contracts.............................................................................79 4.7 Mining.............................................................................................80 4.7.1 Method................................................................................80 4.7.2 Proof of Work......................................................................82 4.7.3 Target and Difficulty...........................................................83 4.7.4 Mining Process................................................................... 84 4.8 Split Coins and Altcoins...................................................................85 4.8.1 Split Coins...........................................................................85 4.8.1.1 Bitcoin Cash.........................................................85 4.8.1.2 Bitcoin Gold.........................................................85 4.8.1.3 Bitcoin Private.......................................................86 4.8.2 Altcoins................................................................................86 4.8.2.1 Namecoin.............................................................87 4.8.2.2 Litecoin.................................................................87 4.8.2.3 Peercoin................................................................88 4.8.2.4 Nxt........................................................................88 4.8.2.5 Dash.....................................................................88 4.9 Summary..........................................................................................89 Section II □SMART CONT RACTS 5 Ethereum and Smart Contracts.............................................................93 5.1 Introduction to Smart Contracts......................................................93 5.1.1 Vending Machine Analogy..................................................94 5.1.2 Nick Szabo and Bit Gold.....................................................95 5.1.3 Turing-Completeness...........................................................96 5.2 What is Ethereum?...........................................................................96 5.3 Token: ETH.....................................................................................97 5.3.1 Pre-Mining..........................................................................97 5.3.2 Price.....................................................................................98 5.3.3 Units....................................................................................98 5.4 Architecture......................................................................................99 5.4.1 Ethereum Virtual Machine (EVM).....................................99 5.4.2 Account.............................................................................100 5.4.3 Address..............................................................................101 5.4.4 Mist...................................................................................101 5.5 Mining...........................................................................................102 5.5.1 Mining Process..................................................................102 5.5.2 Block-Generation Rate.......................................................103 5.5.3 Rewards.............................................................................103 5.6 Smart Contracts in Ethereum.........................................................103 5.6.1 Transactions.......................................................................103 5.6.2 Gas....................................................................................104 5.6.3 High-Level Languages.......................................................104 5.7 ERC Standards...............................................................................105 5.7.1 ERC-20..............................................................................105 5.7.2 ERC-223............................................................................106 5.7.3 ERC-721............................................................................106 5.7.4 Other Standards................................................................107 5.8 Comparison to Bitcoin...................................................................107 5.9 Summary........................................................................................107 6 NEO ..................................................................................................109 6.1 What is NEO?................................................................................109 6.2 Token: NEO and GAS................................................................... 110 6.2.1 Token Generation.............................................................. 110 6.2.2 Token Distribution............................................................ 111 6.3 Architecture.................................................................................... 111 6.3.1 Basic Structure................................................................... 111 6.3.2 Advanced Features............................................................. 111 6.4 Consensus Mechanism: dBFT........................................................112 6.4.1 Algorithm..........................................................................112 6.4.2 Procedure...........................................................................113 6.4.3 Transaction Validation.......................................................113 6.4.4 View Change..................................................................... 114 6.4.5 Fault Tolerance and Transaction Time............................... 114 6.5 Smart Contracts............................................................................. 114 6.6 Summary........................................................................................ 116 7 EOS ..................................................................................................117 7.1 What is EOS?................................................................................. 117 7.2 Token: EOS.................................................................................... 118 7.2.1 Initial Coin Offering.......................................................... 118 7.2.2 Transaction Fees................................................................ 119 7.2.3 Inflation............................................................................. 119 7.3 Architecture.................................................................................... 119 7.4 Consensus Mechanism: DPoS........................................................120 7.4.1 Algorithm..........................................................................120 7.4.2 Procedure...........................................................................121 7.4.3 Reward..............................................................................122 7.5 Smart Contracts.............................................................................122 7.6 EOS.IO Operating System.............................................................123 7.6.1 Schema-Defined Actions and Database..............................123 7.6.2 Separation of Authentication from Applications................124 7.6.3 Inter-Blockchain Communication.....................................124 7.7 Summary........................................................................................124 Section III □FINANCIAL NET WORKS 8 Ripple ..................................................................................................127 8.1 What is Ripple?..............................................................................127 8.2 Token: XRP....................................................................................128 8.2.1 Token Generation and Distribution...................................128 8.2.2 Bridge Currency.................................................................129 8.2.3 Market Capitalisation........................................................129 8.3 Architecture....................................................................................129 8.3.1 Hawala...............................................................................130 8.3.2 XRP Ledger.......................................................................131 8.3.3 Transactions.......................................................................132 8.4 Consensus Mechanism: RPCA.......................................................133 8.4.1 Components......................................................................133 8.4.2 Consensus Process.............................................................134 8.4.3 Correctness........................................................................135 8.5 Codius and Interledger...................................................................136 8.6 Real-Time Gross Settlement System...............................................136 8.6.1 RippleNet..........................................................................137 8.6.2 xCurrent............................................................................138 8.6.3 xRapid...............................................................................139 8.6.4 xVia....................................................................................139 8.7 Partners..........................................................................................139 8.8 Summary........................................................................................141 9 Stellar ..................................................................................................143 9.1 What Is Stellar?..............................................................................143 9.2 Token: Lumens (XLM)..................................................................144 9.2.1 Generation and Distribution..............................................144 9.2.2 Price and Market Cap........................................................145 9.2.3 Role of XLM in the Protocol.............................................145 9.3 Architecture....................................................................................146 9.4 Consensus Mechanism...................................................................146 9.4.1 Quorum and Slices............................................................146 9.4.2 Agreement..........................................................................148 9.5 Applications....................................................................................148 9.5.1 Anchors..............................................................................148 9.5.2 Distributed Exchange........................................................149 9.5.3 Multi-Currency Transactions.............................................149 9.6 Partners.......................................................................................... 153 9.7 Summary........................................................................................ 153 Section IV ADVANCED LEDGERS AND APPLICATION S 10 Purpose-Built Distributed Ledgers.....................................................157 10.1 Purpose-Built Ledgers and Blockchains.......................................... 157 10.2 Internet of Things: IOTA............................................................... 159 10.2.1 Overview........................................................................... 159 10.2.2 Technical Details............................................................... 159 10.2.3 Applications....................................................................... 161 10.2.4 Alternatives: IBM Watson and Waltonchain...................... 161 10.3 Supply Chain: OriginTrail..............................................................162 10.3.1 Overview...........................................................................162 10.3.2 Technical Details...............................................................163 10.3.3 Applications.......................................................................163 10.3.4 Alternatives: VeChain and OpenChain..............................163 10.4 Connectivity: Moeco......................................................................164 10.4.1 Overview...........................................................................164 10.4.2 Technical Details...............................................................164 10.4.3 Applications.......................................................................166 10.5 Cybersecurity: Naoris.....................................................................166 10.5.1 Overview...........................................................................166 10.5.2 Technical Details...............................................................167 10.5.3 Applications.......................................................................168 10.6 Private Network: HydraChain........................................................168 10.6.1 Overview...........................................................................168 10.6.2 Technical Details...............................................................168 10.6.3 Applications.......................................................................170 10.7 Framework: Hyperledger................................................................170 10.7.1 Overview...........................................................................170 10.7.2 Technical Details...............................................................171 10.7.3 Application........................................................................173 10.8 Emerging Distributed Ledgers........................................................173 10.8.1 Medical Services: MediChain and MediLedger.................173 10.8.2 Drug Development: BlockPhrama..................................... 174 10.8.3 Quality Assurance: Ambrosus............................................ 174 10.8.4 Sharing Economy: Slock.it................................................. 174 10.8.5 Genomic Data Collection: Nebula Genomics.................... 174 10.9 Summary........................................................................................175 11 Applications of Blockchain.................................................................177 11.1 Hype or Hope?...............................................................................177 11.2 Classification..................................................................................180 11.2.1 Classifying the Domains....................................................181 11.2.2 Classifying the Categories..................................................181 11.3 Citizen Services..............................................................................182 11.3.1 e-Governance.....................................................................182 11.3.2 Healthcare.........................................................................183 11.3.3 Education..........................................................................185 11.4 Business and Financial Services......................................................186 11.4.1 Financial Services...............................................................186 11.4.2 Smart Property..................................................................187 11.4.3 Exchange and Trading.......................................................187 11.5 Online Marketplace........................................................................187 11.5.1 e-Commerce......................................................................188 11.5.2 Online Betting, Gambling and Gaming............................189 11.5.3 e-Auctions and Online Bidding.........................................189 11.6 Supply Chain, Production and Provenance..................................... 191 11.6.1 Commercial Supply Chain................................................. 191 11.6.2 Food Production................................................................ 191 11.6.3 Drug Manufacturing.........................................................192 11.7 Safety and Security.........................................................................193 11.7.1 Cybersecurity.....................................................................193 11.7.2 Physical Safety, Security and Tracking...............................194 11.8 Smart City......................................................................................195 11.8.1 Smart Home......................................................................195 11.8.2 Smart Transportation.........................................................196 11.8.3 Smart Grid.........................................................................196 11.8.4 Citizen Engagement...........................................................197 11.8.5 Quality Control.................................................................197 11.9 Summary........................................................................................198 Section V CRYPTO CURREN CY 12 Evolution of Money: From Barter to Bitcoin.......................................201 12.1 Money............................................................................................201 12.1.1 Functions of Money...........................................................202 12.1.2 Properties...........................................................................202 12.1.3 Money Supply....................................................................203 12.1.4 Central Bank.................................................................... 204 12.2 Origin and Early Forms................................................................. 204 12.2.1 Barter: The Origin of Money?........................................... 204 12.2.2 Commodity and Representative Money............................ 206 12.2.3 Coinage.............................................................................207 12.2.4 Banknotes..........................................................................209 12.3 Fiat Money.....................................................................................212 12.3.1 Gold Standard...................................................................212 12.3.2 US Dollar Standard...........................................................212 12.3.3 Nixon Shock and Creation of Fiat Money..........................213 12.4 Digital Money................................................................................213 12.4.1 Centralised Digital Money.................................................213 12.4.2 Decentralised Digital Money.............................................214 12.5 Cryptocurrency.............................................................................. 215 12.6 Summary........................................................................................217 13 Cryptocurrency Mining......................................................................219 13.1 Mining........................................................................................... 219 13.1.1 Evolution of Mining......................................................... 220 13.1.2 Mining Process................................................................. 220 13.1.3 Difficulty...........................................................................221 13.1.4 Rewards.............................................................................221 13.2 Hash Rate.......................................................................................221 13.2.1 Understanding Hash Rate..................................................221 13.2.2 Calculating Hash Rate...................................................... 222 13.2.3 Hash Rate and Profits....................................................... 222 13.3 Mining Hardware.......................................................................... 222 13.3.1 Non-Specialised Hardware............................................... 222 13.3.2 Specialised Hardware (ASICs)...........................................224 13.3.3 Profitability Factors............................................................225 13.4 Pooled Mining................................................................................225 13.4.1 Pooled Mining Basics.........................................................225 13.4.2 Mining Pools.................................................................... 226 13.4.3 Reward Sharing................................................................ 228 13.5 Mining Nations............................................................................. 228 13.6 Criticism of PoW Mining...............................................................229 13.7 Summary........................................................................................231 14 Cryptocurrency Wallet........................................................................233 14.1 Wallet.............................................................................................233 14.1.1 Private Key and Address.................................................... 234 14.1.2 Transferring Funds........................................................... 234 14.2 Types of Wallets.............................................................................235 14.2.1 Web Wallet........................................................................236 14.2.2 Software Wallet.................................................................236 14.2.3 External Storage Media......................................................238 14.2.4 Paper Wallet.......................................................................238 14.2.5 Hardware Wallet................................................................239 14.2.6 Brain Wallet.......................................................................240 14.3 Special Wallets...............................................................................241 14.3.1 Multi-Signature Wallet......................................................241 14.3.2 Cold-Storage Wallet...........................................................241 14.3.3 Receive-Only Wallet..........................................................242 14.4 Deterministic Wallet......................................................................242 14.4.1 Type-1 Wallet....................................................................242 14.4.2 Type-2 Wallet....................................................................243 14.4.3 HD Wallet........................................................................ 244 14.5 Wallet Providers............................................................................ 246 14.6 Summary........................................................................................247 15 Cryptocurrency Trading and Investment............................................249 15.1 Investment......................................................................................249 15.1.1 Financial Instruments........................................................250 15.1.2 Commodities.....................................................................251 15.1.3 Currencies..........................................................................251 15.1.4 Derivatives.........................................................................252 15.1.5 Status of Cryptocurrency...................................................253 15.2 Portfolio.........................................................................................253 15.2.1 Funds.................................................................................253 15.2.2 Indices...............................................................................254 15.2.3 ETFs..................................................................................256 15.3 Exchanges and Platforms................................................................257 15.3.1 Cryptocurrency Trading Exchange....................................258 15.3.2 Derivative Trading Exchanges...........................................259 15.3.3 Investment Platforms........................................................ 260 15.4 Investment Strategy........................................................................261 15.4.1 Day Trading.......................................................................261 15.4.2 Buy and Hold....................................................................262 15.4.3 Value Investment...............................................................262 15.5 Investing in Cryptocurrencies.........................................................262 15.5.1 Self-Investment..................................................................263 15.5.2 Guided Investment........................................................... 264 15.6 Regulation and Tax Affairs.............................................................265 15.7 Summary....................................................................................... 266 16 Initial Coin Offerings (ICOs)..............................................................267 16.1 Overview........................................................................................267 16.1.1 The Creation of ICOs....................................................... 268 16.1.2 How Do ICOs Work?........................................................269 16.2 Token Creation...............................................................................269 16.2.1 Token.................................................................................269 16.2.2 Platforms............................................................................270 16.3 Understanding ICOs......................................................................271 16.3.1 ICOs vs IPOs.....................................................................271 16.3.2 Signs of Good and Bad ICOs.............................................272 16.3.3 Advantages and Disadvantages..........................................273 16.4 ICOs in Number............................................................................274 16.4.1 Amount Raised..................................................................274 16.4.2 Breakdown by Industry......................................................274 16.4.3 Biggest Winners and Losers...............................................275 16.5 Scams and Criticisms.....................................................................275 16.6 Summary........................................................................................277 Section VI □SOCIO -ECONO MIC LANDSCAPE 17 Economic Outlook of Cryptocurrency................................................281 17.1 Classification..................................................................................281 17.1.1 Currency............................................................................282 17.1.2 Commodity.......................................................................283 17.1.3 Stock................................................................................. 284 17.2 Price of Bitcoin.............................................................................. 284 17.3 Volatility of Bitcoin........................................................................285 17.4 Historic Price Predictions...............................................................287 17.5 Price Movement of Major Cryptocurrencies...................................287 17.5.1 ETH..................................................................................288 17.5.2 XRP...................................................................................288 17.5.3 XLM..................................................................................289 17.5.4 NEO..................................................................................289 17.5.5 EOS...................................................................................289 17.6 Reception.......................................................................................290 17.6.1 Acceptance by Merchants..................................................290 17.6.2 Acceptance by Investors.....................................................291 17.6.3 Acceptance by Governments..............................................292 17.7 Summary........................................................................................293 18 Crime, Criminals and Cryptocurrencies.............................................295 18.1 Criminal Activities.........................................................................295 18.2 Deep Web.......................................................................................296 18.2.1 Darknet and Dark Web.....................................................297 18.2.2 Onion Routing and Tor.....................................................297 18.2.3 Bitcoin: The Missing Piece.................................................298 18.3 Darknet-Based Crimes...................................................................299 18.3.1 Silk Road...........................................................................299 18.3.2 Post-Silk Road Markets......................................................301 18.3.3 Assassination Markets....................................................... 304 18.3.4 Cybercrimes...................................................................... 306 18.4 Financial Crimes........................................................................... 308 18.4.1 Money Laundering........................................................... 308 18.4.2 Market Manipulation........................................................310 18.5 Fraudulent Activities.......................................................................310 18.5.1 False Claims....................................................................... 311 18.5.2 Scams.................................................................................312 18.6 Prevention......................................................................................312 18.6.1 Regulation.........................................................................313 18.6.2 Cooperation....................................................................... 314 18.6.3 Participation...................................................................... 315 18.7 Summary........................................................................................316 19 Regulations, Laws and Practices.........................................................317 19.1 Legality of Blockchain and Cryptocurrency................................... 317 19.2 Regulatory Issues............................................................................ 318 19.2.1 Misuse of Pre-Mining and ICOs........................................ 319 19.2.2 Crackdowns on Mining and Trading................................. 319 19.3 Current Landscape.........................................................................320 19.3.1 Challenges.........................................................................320 19.3.2 Areas..................................................................................321 19.3.3 Blockchain-Friendly Nations.............................................322 19.4 Regulations for Blockchain Technology and Cryptocurrency.........323 19.4.1 The Americas.....................................................................323 19.4.2 Europe...............................................................................324 19.4.3 Asia....................................................................................326 19.4.4 Australia and Africa...........................................................327 19.5 Summary........................................................................................328 20 Criticism, Scepticism and Support......................................................329 20.1 Before It All Started........................................................................329 20.2 Early Days of Bitcoin......................................................................330 20.3 Bitcoin Grabs Attention..................................................................331 20.4 Beginning of the Bull Run.............................................................332 20.5 Crazy Price Hike............................................................................334 20.6 To Invest or Not to Invest?.............................................................335 20.7 $10K and Counting........................................................................337 20.8 Nosedive.........................................................................................338 20.9 Summary....................................................................................... 344 Bibliography.................................................................................................345 Index............................................................................................................355