Book Summary - Digital Gold: Bitcoin and the Inside Story of the Misfits and Millionaires Trying to Reinvent Money by Nathaniel Popper.

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New York Times technology and business reporter Nathaniel Popper profiles the major players in the nascent rise of Bitcoin, the developers, the entrepreneurs, the history of money, digital currency, and bitcoin. Nathaniel writes about the early adopters, the skeptics, the financiers, the opportunities, and the challenges faced by Bitcoin so far. He traces Bitcoin from its invention in 2009 after the Financial Crisis through the spring of 2014.

Digital Gold is a great book for understanding the history of Bitcoin, the opportunities, and the challenges faced by the early adopters of the technology. The hacks, the vulnerabilities, the use cases, the promises, and the mystery of Satoshi Nakamoto (creator of Bitcoin). This technology is making millionaires by the day, and it is sending some other people to prison.

Bitcoin – Satoshi Nakamoto

THE BITCOIN CONCEPT first came onto the scene in more modest circumstances, in 2008, when it was posted to an obscure mailing list by a shadowy author going by the name Satoshi Nakamoto. (Bitcoin: A Peer-to-Peer Electronic Cash System)

From the beginning, Satoshi envisioned a digital analog to old-fashioned gold: a new kind of universal money that could be owned by everyone and spent anywhere. Like gold, these new digital coins were worth only what someone was willing to pay for them—initially nothing. But the system was set up so that, like gold, Bitcoins would always be scarce—only 21 million of them would ever be released—and hard to counterfeit. As with gold, it required work to release new ones from their source, computational work in the case of Bitcoins.

The blockchain is a public database of all transactions and it is sustained by a network of computers run by the users of Bitcoin themselves

The five basic steps of the Bitcoin process:

•Alice initiates a transfer of Bitcoins from her account by signing off with her private key and broadcasting the transaction to other users.

•The other users of the network make sure Alice’s Bitcoin address has sufficient funds and then add Alice’s transaction to a list of other recent transactions, known as a block.

•Computers take part in a computational race to have their list of transactions, or block, added to the blockchain.

•The computer that has its block added to the blockchain is also granted a bundle of new Bitcoins.

•Computers on the network start compiling a new list of unconfirmed recent transactions, trying to win the next bundle of Bitcoins.

The Blockchain Breakthrough

The result of this complicated process was something that was deceptively simple but never previously possible: a financial network that could create and move money without a central authority. No bank, no credit card company, no regulators. The system was designed so that no one other than the holder of a private key could spend or take the money associated with a particular Bitcoin address. What’s more, each user of the system could be confident that, at every moment in time, there would be only one public, unalterable record of what everyone in the system owned.

Satoshi’s paper cited Back and Wei Dai, as well as several obscure journals of cryptography. But Satoshi put all these earlier innovations together to create a system that was quite unlike anything that had come before it.

Early Digital Currencies Pioneers

David Chaum- Digi Cash

Working out of an institute in Amsterdam, Chaum had created DigiCash, an online money that could be spent anywhere in the world without requiring users to hand over any personal information. The system harnessed public-key cryptography to allow for what Chaum called blind digital signatures, which allowed people to sign off on transactions without providing any identifying information.

Hash Cash – Adam Back (1997)

With hashcash, computers essentially had to figure out which two numbers can be multiplied together to get 10,366,613, though the problems for hashcash were significantly harder than that. So hard, in fact, that all a computer could do was try out lots of different guesses with the aim of eventually finding the right answer. When a computer found the right answer, it would earn hashcash.

A computer had to perform lots of work to create each new unit of hashcash, earning the process the name “proof-of-work”—something that would later be a central innovation underpinning Bitcoin.

Nick Szabo – Bitgold

One of these, a concept called bit gold, was invented by Nick Szabo, a security expert and Cypherpunk who circulated his idea to close collaborators like Hal Finney in 1998, but never actually put it into practice.

Early Adopters

Bitcoin was first adopted and explored by developers and libertarians such as:

Hal Finney

Hal Finney was one of the early adopters of Bitcoin. Hal was the first employee of Pretty Good Privacy, or PGP, which allowed people to send each other messages encrypted using public-key cryptography. Hal’s computer was the second one to join the Bitcoin network after Satoshi’s, and he also received the first bitcoin transaction from bitcoin’s creator Satoshi Nakamoto.

Hal Finney received the first bitcoin transaction from bitcoin’s creator Satoshi Nakamoto

Martti Malmi – Finnish Software Engineering Student

Before reaching out to Satoshi, Martti had written about Bitcoin on anti-state.org, a forum dedicated to the possibility of an anarchist society organized only by the market. Martti helped with the early revamp of the Bitcoin Website; he also created the early website copy and design of the Bitcoin Logo. Martti Malmi sent Satoshi Nakamoto the following message:

I would like to help with Bitcoin if there is anything I can do.

Laszlo Hanecz

Laszlo was the first person to use bitcoin in a commercial transaction. On May 22nd, 2010, He paid another bitcoin user 10,000 Bitcoins in exchange for two Pizzas as a fun experiment.

On May 22, 2010, a guy in California offered to call Lazlo’s local Papa John’s. A short while later a delivery man knocked on the door of Laszlo’s four-bedroom home in suburban Jacksonville bringing two pizzas, fully loaded with toppings.

Gavin Andresen

Gavin was declared by Satoshi Nakamoto as the lead developer of the reference implementation for bitcoin client software after Nakamoto had announced his departure. In 2012 Andresen founded the Bitcoin Foundation to support and nurture the development of the bitcoin currency, and by 2014 left his software development role to concentrate on his work with the Foundation.

The Developers and their Platforms

BitPay

Two former fraternity brothers at Georgia Tech had founded a company called BitPay, which looked to harness the network as a cheaper way for merchants to accept online payments, while also giving Bitcoiners a place to actually spend their virtual currency. With BitPay, merchants could accept Bitcoin, and BitPay would immediately convert the virtual currency into dollars and deliver those dollars into the merchant’s bank account.

Charlie Shrem – BitInstant

Charlie founded Bit Instant, a bitcoin startup that charged a fee for users to purchase and make purchases with bitcoins at over 700,000 locations, providing temporary credit to speed up transactions.

In 2014 he was sentenced to two years in prison for aiding and abetting the operation of an unlicensed money-transmitting business related to the Silk Road marketplace.

Mt-Gox: Jed McCaleb

After reading about bitcoin on Slashdot, Jed spotted an opportunity to create an exchange for the trading of bitcoin and other regular currencies. With some experience in amateur foreign-currency trading, Jed knew the basics of what an exchange required. He launched mtgox.com on 18 July 2010, by 2013, and into 2014 it was handling over 70% of all bitcoin (BTC) transactions worldwide, as the largest bitcoin intermediary and the world’s leading bitcoin exchange.

Ross Ulbricht – Silk Road

Ross had made his first post about Silk Road in the middle of a long-lasting thread on the Bitcoin forum, entitled “A Heroin Store,” which had been discussing the possibility of such a marketplace. Silk Road used Tor for anonymity and bitcoin as a currency and facilitated the sale of narcotics and other illegal sales.