Chapter 01

What is Bitcoin?

The first mention of a product called bitcoin was in August 2008 when two programmers using the names Satoshi Nakamoto and Martti Malmi registered a new domain, In October of the same year, Nakamoto released a document, called a white paper, entitled “Bitcoin: A Peer-to-Peer Electronic Cash System.” In the preceding months, Nakamoto and a group of volunteer researchers had proposed different versions of the concept in forums and email threads. It was in 2008 that it all came together.

The Bitcoin White Paper
Source: Satoshi Nakamoto

This paper laid out principles of Bitcoin, a novel electronic payment system that would eliminate the need for any central authority while ensuring secure, verifiable transactions. In short, the document described a new form of currency, one that allowed for trustless payments on the web – that is the require a minimal amount or even no trust between parties.

In other words, the system allowed two users who didn’t know or trust each other to send money to each other in the same way they could pass cash back and forth. The system also allowed users to confirm messages, transactions and data using a tool called public key encryption. Pseudonymity, in this case, was a byproduct but not a primary feature.

In January 2009, the first bitcoin currency transaction occurred between two computers owned by Nakamoto and the late Hal Finney, a developer and an early cryptocurrency enthusiast. 

To this day, no one knows who Satoshi Nakamoto really is. Even a man named Dorian Nakamoto was erroneously named as Bitcoin’s creator by a Newsweek reporter in 2014.

Dorian Nakamoto wasn't Satoshi.

In the end, however, because of the decentralized nature of the platform, it is not considered important to know who Satoshi Nakamoto is.

Bitcoin Up Close

Bitcoins aren’t printed, like dollars or euros – they’re produced by computers all around the world using free software and held electronically in programs called wallets. The smallest unit of a bitcoin is called a satoshi. It is one hundred millionth of a bitcoin (0.00000001). This enables microtransactions that traditional electronic money cannot do.

Bitcoin was the first example of what we call cryptocurrencies today, a growing asset class that shares some characteristics with traditional currencies except they are purely digital, and creation and ownership verification is based on cryptography.

Generally when we speak of bitcoin, there are two possible interpretations. There’s bitcoin the token, which refers to the keys to a unit of the digital currency that users own and trade. A bitcoin token is held in a bitcoin wallet that is identified by a string of numbers and letters such as “1A1zP1eP5QGefi2DMPTfTL5SLmv7DivfNa.” When someone wants to send you bitcoin, that person will send it to your particular, public wallet address and you will access it via your private keys. 

Then there’s Bitcoin the protocol, a distributed ledger that maintains the balances of all token trading. These ledgers are massive files stored on thousands of computers around the world. The network records each transaction onto these ledgers and then propagates them to all of the other ledgers on the network. Once all of the networks agree that they have recorded all of the correct information – including additional data added to a transaction that allows the network to store data immutably – the network permanently confirms the transaction. 

Bitcoin can be used to pay for things electronically, if both parties are willing. In that sense it’s like conventional dollars, euros or yen, which can also be traded digitally using ledgers owned by centralized banks. Unlike payment services such as PayPal or credit cards, however, once you send a bitcoin it cannot be called back. 

That said, bitcoin does not depend on a centralized system of banking. Because each node on the network is owned by a private entity, the entire network is responsible for maintaining the accuracy of the ledger. When you send a bitcoin – or a fraction of a bitcoin – to another person, the entire network takes part.

This process is called decentralization, one of the Bitcoin network’s most important characteristics. No single institution controls the bitcoin network. It is maintained by a group of volunteer coders, and run by an open network of dedicated computers around the world. 

Since there is no central validator in this network, users do not need to identify themselves when sending bitcoin to others. When a sender initiates a transaction, the protocol checks all previous transactions to confirm the sender  has the necessary bitcoin as well as the authority to send them. Put another way, bitcoin users theoretically operate in semi-anonymity and the network is self-policing, ensuring that bad actors cannot be rewarded. 

Bitcoin is also pseudo-anonymous. In practice, each user is identified by the address of his or her wallet, which can be used to track transactions. Law enforcement has also developed methods to identify users if necessary. Most exchanges are required by law to perform identity checks on their customers before they are allowed to buy or sell bitcoin. This means an exchange-assigned wallet address is most likely connected to a particular user. That said, a wallet generated by an anonymous user on a single computer is fairly difficult to trace but not impossible. Further, every transaction on the network is fully transparent, a fact that concerns some privacy advocates. Ultimately, tracing a bitcoin transaction is difficult but not impossible and any statements regarding the difficult and dangerous anonymity of bitcoin are untrue.
Source: Shutterstock

Since the network is transparent, the progress of a particular transaction is visible to all. Once that transaction is confirmed, it cannot be reversed. This means any transaction on the bitcoin network cannot be tampered with, making it immune to hackers. Most bitcoin hacks happen at the wallet level, with hackers stealing the keys to hoards of bitcoins rather than affecting the Bitcoin protocol itself.

Another attribute of bitcoin that takes away the need for central banks is that its supply is tightly controlled by the underlying algorithm. With fiat currencies (dollars, euros, yen, etc.), central banks can issue as many as they want and can attempt to manipulate a currency’s value relative to others. Holders of the currency,especially citizens with little alternative, bear the cost.

With bitcoin, a small number of new coins trickle out every hour, and will continue to do so at a diminishing rate until a maximum of 21 million has been reached. This makes bitcoin more attractive as an asset: in theory, if demand grows and the supply remains the same, the value will increase. 

Roughly every four years, the amount of bitcoin that miners can earn in the network will be halved, potentially driving up the asset’s price. Such an event is called bitcoin halving (the most recent one happened in May 2020).


Chapter 02

How Can I Buy Bitcoin?

So you’ve learned the basics of bitcoin, now you’re excited about its potential and want to buy some. But how?

Bitcoin can be bought on exchanges or directly from other people via marketplaces.

You can purchase bitcoin in a variety of ways, using anything from hard cash to credit and debit cards to wire transfers, or even other cryptocurrencies, depending on who you are buying them from and where you live.

The first step is to set up a wallet to store your bitcoin – you will need one, whether you’re buying bitcoin online or with cash. This could be an online wallet (either part of an exchange platform, or via an independent provider), a desktop wallet, a mobile wallet or an offline one (such as a hardware device or a paper wallet).


The most important part of any wallet is keeping your keys and/or passwords safe. If you lose them, you lose access to the bitcoin stored there. In addition, never invest more than you can afford to lose – cryptocurrencies are volatile and their prices could go down as well as up.

If you want to buy bitcoin online, you can open an account at a cryptocurrency exchange that will buy and sell bitcoin on your behalf. There are hundreds currently operating, with varying degrees of liquidity and security, and new ones continue to emerge while others end up closing down due to hacking. As with wallets, it is advisable to do some research before choosing – you may be lucky enough to have several reputable exchanges to choose from, or there might just be one or two based on your geographical area.

The largest bitcoin exchange in the world at the moment in terms of US$ volume is Bitfinex, although it is mainly aimed at savvier traders. Other high-volume exchanges are Coinbase, Bitstamp and Poloniex. For small amounts, most reputable exchanges should work well. 

With the clampdown on know-your-client (KYC) and anti-money-laundering (AML) regulation, many exchanges now require verified identification for account setup. This usually includes a photo of your official ID, and sometimes also a proof of address.

Most exchanges accept payments via bank transfers or credit cards, and some are willing to work with Paypal transfers. They typically charge fees for each transaction, which include the cost for using the bitcoin network.

A bitcoin transaction takes anywhere from a few minutes to a couple days to process, depending on the traffic in the network as well as the fee attached to that transaction.

Once the exchange has received payment, it will purchase the corresponding amount of bitcoin on your behalf, and deposit them in an automatically generated wallet on the exchange. You should then move the funds to your off-exchange wallet.

BATMTwo Bitcoin ATM
Source: Bitcoin ATM

If you prefer to buy bitcoin with cash, platforms such as LocalBitcoins will help find individuals near you who are willing to exchange bitcoin for cash. Also, LibertyX lists retail outlets across the United States at which you can exchange cash for bitcoin. And WallofCoins, Paxful and BitQuick will direct you to a bank branch near you that will allow you to make a cash deposit and receive bitcoin a few hours later.

Localbitcoin coverage

Bitcoin ATMs are machines that will send bitcoin to your wallet in exchange for cash. They operate in a similar way to bank ATMs – you feed in the bills, hold your wallet’s QR code up to a screen, and the corresponding amount of bitcoin is beamed to your account. Coinatmradar can help you to find a bitcoin ATM near you.



Chapter 03

Why Use Bitcoin?



Source: Shutterstock









Chapter 04

How to Store Your Bitcoin

Before holding any bitcoin, you need somewhere to store it. Just like in the physical world, you store your bitcoin in a wallet. 

Similar to a bank account number, your wallet comes with a wallet address that shows up in a ledger search and is shared with others so you can make transactions. This address, which is a shorter, more usable version of your public key, consists of between 26 and 35 random alphanumeric characters, something like 1A1zP1eP5QGefi2DMPTfTL5SLmv7DivfNa. Keep in mind that every letter and number in that address is important. Before sending any bitcoin to your wallet, double-check the entire address, character by character.  

Also tied to your wallet address is one or more private keys, which as the name suggests should not be shared with anyone. Keys are used to verify you own the aforementioned public key, and to sign off on transactions. Some wallets create a secure seed phrase, a set of words that will allow you to unlock your wallet if you lose your keys. Print this phrase out and keep it in a safe place.
Source: Shutterstock

The unfortunate truth is your bitcoin wallet is akin to your physical wallet. If you lose the private keys to your wallet, you’re most likely going to lose the currency in it forever. 

Your wallet generates a master file where your public and private keys are stored. This file should be backed up in case the original file is lost or damaged. Otherwise, you risk losing access to your funds.


Remember: Your wallet does not reside on any single device. The wallet itself resides on the Bitcoin blockchain, just as your banking app doesn’t truly “hold” the cash in your checking account.

While wallet apps work well and are relatively safe, the safest option is a hardware wallet you keep offline, in a secure place. The most popular hardware wallets use special layers of security to ensure your keys are not stolen and your bitcoin is safe. But, once again, if you lose the hardware wallet your bitcoins are gone unless you have kept reliable backups of the keys.

The least-secure option is an online wallet, i.e. storing your bitcoin in an exchange. This is because the keys are held by a third party. For many, the online exchange wallets are the easiest to set up and use, presenting an all-too-familiar choice: convenience versus safety.

Many serious bitcoin investors use a hybrid approach: They hold a core, long-term amount of bitcoin offline in so-called “cold storage,” while keeping a spending balance in a mobile account. 

Depending on your bitcoin strategy and willingness to get technical, here are the different types of bitcoin wallets available. has a helper that will show you which wallet to choose.
Source: Shutterstock

Cloud wallets exist online and the keys are usually stored in a distant server run by a third party. Cloud-based wallets tend to have a more user-friendly interface but you will be trusting a third party with your private keys, which makes your funds more susceptible to theft. Some examples of this wallet type are Coinbase, Blockchain and Lumi Wallet. Most cryptocurrencies, including bitcoin, have their own native wallets. Some offer additional security features such as offline storage (Coinbase and Xapo).

With your private keys stored on a server, you have to trust the host’s security measures and also trust the host won’t disappear with your money or close down and deny you access.

Software wallets can be installed directly on your computer, giving you private control of your keys. Most have relatively easy configuration and are free. The disadvantage is you are in charge of securing your keys. Software wallets also require greater security precautions. If your computer is hacked or stolen, the thief can get a copy of your wallet and your bitcoin.

While you can download the original software Bitcoin Core protocol (which stores a ledger of all transactions since 2009 and takes up a lot of space), most wallets in use today are “light” wallets, or SPV (Simplified Payment Verification) wallets, which do not download the entire ledger but sync to it. 

Electrum is a well-known SPV desktop bitcoin wallet that also offers “cold storage” (a totally offline option for additional security). Exodus can track multiple assets with a sophisticated user interface. Some (such as Jaxx Liberty) can hold a wide range of digital assets, and some (such as Copay) offer the possibility of shared accounts.

Before downloading any app, please confirm you are downloading a legitimate copy of a real wallet. Some shady programmers create clones of various crypto websites and offer downloads for free, leading to the possibility of a hack. 

Mobile wallets are available as apps for your smartphone, especially useful if you want to pay for something in bitcoin in a shop or if you want to buy, sell or send while on the move. All of the online wallets and most of the desktop ones mentioned above have mobile versions, while others – such as Abra, Edge and Bread – were created with mobile in mind. Remember, many online wallets will store your keys on the phone itself, leading to the possibility of losing your bitcoin if you lose your phone. Always keep a backup of your keys on a different device and print out your seed phrase.

Hardware wallets are small devices that connect to the web only to enact bitcoin transactions. They are more secure because they are generally offline and therefore not hackable. They can be stolen or lost, however, along with the bitcoins that belong to the stored private keys, so it’s recommended that you backup your keys. Some large investors keep their hardware wallets in secure locations such as bank vaults. Trezor, Keepkey and Ledger are notable examples.

Paper wallets are perhaps the simplest of all the wallets. Paper wallets are pieces of paper that contain the private and public keys of a bitcoin address. Ideal for the long-term storage of bitcoin (away from fire and water, of course) or for the giving of bitcoin as a gift, these wallets are more secure in that they’re not connected to a network. They are, however, easier to lose.

With services such as WalletGenerator, you can easily create a new address and print the wallet on your printer. When you’re ready to top up your paper wallet you simply send some bitcoin to that address and then store it safely. Whatever option you go for, be sure to back up everything and only tell your nearest and dearest where your backups are stored.


(Note: Specific businesses mentioned here are not the only options available, and should not be taken as an official recommendation. Further, companies could go out of business and be replaced with more nefarious owners. Always protect your keys.)


Chapter 05

How to Sell Bitcoin



All exchanges allow you to sell as well as buy. What type of exchange you choose to sell your bitcoin will depend on what type of holder you are: small investor, institutional holder or trader?

Some platforms such as GDAX and Gemini are aimed more at large orders from institutional investors and traders.

Retail clients can sell bitcoin at exchanges such as Coinbase, Kraken, Bitstamp, Poloniex, etc. Each exchange has a different interface, and some offer related services such as secure storage. Some require verified identification for all trades, while others are more relaxed if small amounts are involved.

(Of course, don’t forget to declare any profit you make on the sale to your relevant tax authority!)

You can, if you wish, exchange your bitcoin for other cryptoassets rather than for cash. Some exchanges such as ShapeShift focus on this service, allowing you to swap between bitcoin and ether, litecoin, XRP, dash and several others.

Another alternative is the direct sale. You can register as a seller on platforms such as LocalBitcoins, BitQuick, Bittylicious and BitBargain, and interested parties will contact you if they like your price. Transactions are usually done via deposits or wires to your bank account, after which you are expected to transfer the agreed amount of bitcoin to the specified address.

Or, you can sell directly to friends and family once they have a bitcoin wallet set up. Just send the bitcoin, collect the cash or mobile payment, and have a celebratory drink together. (Note: it is generally not a good idea to meet up with strangers to exchange bitcoin for cash in person. Be safe.)



Chapter 06

How do Bitcoin Transactions Work?


There are three key variables in any bitcoin transaction: an amount, an input and an output. An input is the address from which the money is sent, and an output is the address that receives the funds. Since a wallet can contain several input addresses, you can send money from one or more inputs to one or more outputs. There is also a data storage portion on each transaction, a sort of note, that allows you to record data to the blockchain immutably.

But the unique thing about bitcoin transactions is that, if you initiate a transaction that’s worth less than the total amount in your input, you get your change back not to your original output, but through a new third address in your control. This means your wallet typically ends up containing multiple addresses, and you can pull funds from these addresses to make future transactions.

You’ve learned how to buy and store your bitcoins, so you already know what public and private keys are for, and you’ll need these to issue a transaction. To do that, you put your private key, the amount of bitcoins you want to send and the output address into the bitcoin software on your computer or smartphone. 

Then the program generates a signature made from your private key to announce this transaction to the network for validation. The network needs to confirm that you own the bitcoin being transferred and that you haven’t spent it by checking all previous transactions which are public on the ledger. Once the bitcoin program verifies that indeed your private key corresponds to the provided public key (without knowing what your private key is), your transaction is confirmed. 

This transaction is now included in a “block” which gets attached to the previous block to be added to the blockchain. Every transaction in the blockchain is tied to a unique identifier called a transaction hash (txid), which looks like a 64-character string of random letters and numbers. You can track a particular transaction by typing this txid in the search bar on the blockchain explorer

Transactions can’t be undone or tampered with, because it would mean re-doing all the blocks that came after. This process is not instantaneous. Because the bitcoin blockchain is fairly large, it takes a lot of time to process a single transaction among the many on the blockchain. 

The amount of time it takes to confirm a transaction varies, ranging anywhere from a few minutes to a couple days, based on traffic on the blockchain and the size of your transaction. Larger transactions with higher fees tend to get validated by miners quicker than smaller ones. That said, once it is confirmed, it is immutably recorded forever.

If you want to indulge in some mindless fascination, you can sit at your desk and watch bitcoin transactions float by. is good for this, but try BitBonkers if you want a hypnotically fun version.


Chapter 07

How Bitcoin Mining Works




Chinese crypto mining machine maker Canaan saw its stock price closed at $1.98 per share, the first time since its initial public offering at a price of $9 per share last December. (Credit: Shutterstock)
Source: Shutterstock
















Chapter 08

How to Set Up a Bitcoin Miner

By this stage, you will understand how bitcoin works, and what mining means. But we need to get from theory to practice. How can you set up a bitcoin mining hardware and start generating some digital cash? The first thing you’re going to need to do is decide on your hardware, and there are two main things to think about when choosing it:

Hash rate is the number of calculations that your hardware can perform every second as it tries to crack the mathematical problem we described in our mining section. Hash rates are measured in megahashes, gigahashes, and terahashes per second (MH/sec, GH/sec, and TH/sec). The higher your hash rate (compared to the current average hash rate), the more likely you are to solve a transaction block. The bitcoin wiki’s mining hardware comparison page is a good place to go for rough information on hash rates for different hardware.

When choosing a hardware, it’s worth looking at your device’s energy consumption. All this computing power chews up electricity, and that costs money. You want to make sure that you don’t end up spending all of your money on electricity to mine coins that won’t be worth what you paid.

To work out how many hashes you’re getting for every watt of electricity that you use, divide the hash count by the number of watts.

Source: Credit: Anna Baydakova for CoinDesk

For example, if you have a 500 GH/sec device, and it’s taking 400 watts of power, then you’re getting 1.25 GH/sec per watt. You can check your power bill or use an electricity price calculator online to find out how much that means in hard cash.

However, there’s a caveat here. In some cases, you’ll be using your computer to run the mining hardware. Your computer has its own electricity draw on top of the mining hardware, and you’ll need to factor that into your calculation.

There are three main hardware categories for bitcoin miners: GPUs, FPGAs, and ASICs. We’ll explore them in depth below.

CPU/GPU Bitcoin Mining

The least powerful category of bitcoin mining hardware is your computer itself. Theoretically, you could use your computer’s CPU to mine for bitcoins, but in practice, this is so slow by today’s standards that there isn’t any point.

You can enhance your bitcoin hash rate by adding graphics hardware to your desktop computer. Graphics cards feature graphical processing units (GPUs). These are designed for heavy mathematical lifting so they can calculate all the complex polygons needed in high-end video games. This makes them particularly good at the Secure Hash Algorithm (SHA) hashing mathematics necessary to solve transaction blocks.

One of the nice things about GPUs is that they also leave your options open. Unlike other options discussed later, these units can be used with cryptocurrencies other than bitcoin. Litecoin, for example, uses a different proof of work algorithm to bitcoin, called Scrypt. This has been optimized to be friendly to CPUs and GPUs, making them a good option for GPU miners who want to switch between different currencies.

GPU mining is largely dead these days. Bitcoin mining difficulty has accelerated so much with the release of ASIC mining power that graphics cards can’t compete.

FPGA Bitcoin Mining

A Field Programmable Gate Array (FPGA) is an integrated circuit designed to be configured after being built. This enables a mining hardware manufacturer to buy the chips in volume, and then customize them for bitcoin mining before putting them into their own equipment. Because they are customized for mining, they offer performance improvements over CPUs and GPUs. Single-chip FPGAs have been seen operating at around 750 MH/sec, although that’s at the high end. It is of course possible to put more than one chip in a box.

ASIC Bitcoin Miners

This is where the action’s really at. Application Specific Integrated Circuits (ASICs) are specifically designed to do just one thing: mine bitcoins at mind-crushing speeds, with relatively low power consumption. Because these chips have to be designed specifically for that task and then fabricated, they are expensive and time-consuming to produce – but the speeds are stunning. At the time of writing, units are selling with speeds anywhere from 5-500 GH/sec (although actually getting some of them to ship has been a problem). Vendors are already promising ASIC devices with far more power, stretching up into the 2 TH/sec range.

Before making your purchase, calculate the projected profitability of your miner, using mining profitability calculators online like this one. You can input parameters such as equipment cost, hash rate, power consumption, and the current bitcoin price to see how long it will take to pay back your investment.

One of the other key parameters here is network difficulty. This metric determines how hard it is to solve transaction blocks, and it varies according to the network hash rate. Difficulty is likely to increase substantially as ASIC devices come on the market, so it might be worth increasing this metric in the calculator to see what your return on investment will be like as more people join the game. 

Once you have chosen your hardware, you’ll need to do several other things. Depending on which equipment you choose, you will need to run software to make use of it. Typically when using GPUs and FPGAs, you will need a host computer running two things: the standard bitcoin client, and the mining software.

The standard bitcoin client connects your computer to the network and enables it to interact with the bitcoin clients, forwarding transactions and keeping track of the block chain. It will take some time for it to download the entire bitcoin block chain so that it can begin. The bitcoin client effectively relays information between your miner and the bitcoin network.

The bitcoin mining software is what instructs the hardware to do the hard work, passing through transaction blocks for it to solve. There are a variety of these available, depending on your operating system. They are available for Windows, Mac OS X, and others.


One smart developer even produced a mining operating system designed to run on the Raspberry Pi, a low-cost credit card-sized Linux computer designed to consume very small amounts of power. This could be used to power a USB-connected ASIC miner.

Now, you’re all set up. Good for you. But you will stand little chance of success mining bitcoins unless you work with other people, by joining a bitcoin mining pool for example. 

Nowadays, the bitcoin mining industry primarily operates on a pool level rather than on an individual level. Some of the biggest bitcoin miners in the world are F2Pool, Poolin, Slush Pool and AntPool.   


Chapter 09

Can Bitcoin Scale?

You have some bitcoins in your wallet and want to spend them on your daily purchases. But what would that look like in a world where Visa, Mastercard and other financial services still dominate the market? 

The ability for bitcoin to compete with other payment systems has long been up for debate in the cryptocurrency community. When Satoshi Nakamoto programmed the blocks to have a size limit of approximately 1MB each to prevent network spam, he also created the problem of bitcoin illiquidity.

Since each block takes an average of 10 minutes to process, only a small number of transactions can go through at a time. For a system that many claimed could replace fiat payments, this was a big barrier. While Visa handles around 1,700 transactions a second, bitcoin could process up to 7. An increase in demand would inevitably lead to an increase in fees, and bitcoin’s utility would be limited even further.

The scaling debate has unleashed a wave of technological innovation in the search of workarounds. While significant progress has been made, a sustainable solution is still far from clear.

A simple solution initially appeared to be an increase in the block size. Yet that idea turned out to be not simple at all.

First, there was no clear agreement as to how much it should be increased by. Some proposals advocated for 2MB, another for 8MB, and one wanted to go as high as 32MB.

The core development team argued that increasing the block size at all would weaken the protocol’s decentralization by giving more power to miners with bigger blocks. Plus, the race for faster machines could eventually make bitcoin mining unprofitable. Also, the number of nodes able to run a much heavier blockchain could decrease, further centralizing a network that depends on decentralization.

Second, not everyone agrees on this method of change. How do you execute a system-wide upgrade when participation is decentralized? Should everyone have to update their bitcoin software? What if some miners, nodes and merchants don’t?

And finally, bitcoin is bitcoin, why mess with it? If someone didn’t like it, they were welcome to modify the open-source code and launch their own coin.

One of the earliest solutions to this issue was proposed by developer Pieter Wiulle in 2015. It’s called Segregated Witness, or SegWit

This process would increase the capacity of the bitcoin blocks without changing their size limit, by altering how the transaction data was stored. (For a more detailed account, see our explainer.)

SegWit was deployed on the bitcoin network in August 2017 via a soft fork to make it compatible with nodes that did not upgrade. While many wallets and other bitcoin services are gradually adjusting their software, others are reluctant to do so because of the perceived risk and cost.

Several industry players argued that SegWit didn’t go far enough – it might help in the short term, but sooner or later bitcoin would again be up against a limit to its growth.

In 2017, coinciding with CoinDesk’s Consensus conference in New York, a new approach was revealed: Segwit2X. This idea – backed by several of the sector’s largest exchanges – combined SegWit with an increase in the block size to 2MB, effectively multiplying the pre-SegWit transaction capacity by a factor of 8.

Far from solving the problem, the proposal created a further wave of discord. The manner of its unveiling (through a public announcement rather than an upgrade proposal) and its lack of replay protection (transactions could happen on both versions, potentially leading to double spending) rankled many. And the perceived redistribution of power away from developers towards miners and businesses threatened to cause a fundamental split in the community.

Other technological approaches are being developed as a potential way to increase capacity.

Schnorr signatures offer a way to consolidate signature data, reducing the space it takes up within a bitcoin block (and enhancing privacy). Combined with SegWit, this could allow a much greater number of transactions, without changing the block size limit

And work is proceeding on the lightning network, a second layer protocol that runs on top of bitcoin, opening up channels of fast microtransactions that only settle on the bitcoin network when the channel participants are ready.

Adoption of the SegWit upgrade is slowly spreading throughout the network, increasing transaction capacity and lowering fees.

Progress is accelerating on more advanced solutions such as lightning, with transactions being sent on testnets (as well as some using real bitcoin). And the potential of Schnorr signatures is attracting increasing attention, with several proposals working on detailing functionality and integration.

While bitcoin’s use as a payment mechanism seems to have taken a back seat to its value as an investment asset, the need for a greater number of transactions is still pressing as the fees charged by the miners for processing are now more expensive than fiat equivalents. More importantly, the development of new features that enhance functionality is crucial to unlocking the potential of the underlying blockchain technology.


Chapter 10

What is Bitcoin's Lightning Network?

Tackling bitcoin’s scalability isn’t easy, but developers Thaddeus Dryja and Joseph Poon had an idea. In a 2016 white paper, they proposed the concept of a protocol called “the lightning network” that would enable faster and cheaper transactions while not having to change the block size. 

The network creates a second layer on top of the bitcoin blockchain and comprises user-generated channels. You can securely send payments back and forth without the need to trust or even know your counterparty.

Say, for instance, that I wanted to pay you for each minute of video that I watched. We would open up a lightning channel, and as the minutes rolled by, periodic payments would be made from my wallet to yours. When I’m done watching, we would close the channel to settle the net amount on the bitcoin blockchain.

Because the transactions are just between me and you and don’t need to be broadcast to the whole network, they are almost instantaneous. And because there are no miners that need incentivizing, transaction fees are low or even non-existent.

How it works

First, two parties who wish to transact with each other set up a multisignature wallet (which requires more than one signature to enact a transaction). This wallet holds some amount of bitcoin. The wallet address is then saved to the bitcoin blockchain. This sets up the payment channel.

The two parties can now conduct an unlimited number of transactions without ever touching the information stored on the blockchain. With each transaction, both parties sign an updated balance sheet to always reflect how much of the bitcoin stored in the wallet belongs to each.

Once the two parties finish transacting and close out the channel, the resulting balance is registered on the blockchain. In the event of a dispute, both parties can use the most recently signed balance sheet to recover their share of the wallet.

It is not necessary to set up a direct channel to transact on lightning – you can send payments to someone via channels with people that you are connected with. The network automatically finds the shortest route.

Development of the technology got a significant boost with the adoption of SegWit on the bitcoin and litecoin networks. Without the upgrade’s transaction malleability fix, transactions on the lightning network would have been too risky to be practical.

Without the security of the blockchain behind it, the lightning network will not be as secure, which implies that it will largely be used for small or even micro transactions which carry a lower risk. Larger transfers that require decentralized security are more likely to be done on the original layer.

Where are we now?

In March 2018, California startup Lightning Labs announced the launch of a beta version of its software, making available what investors and project leads say is the first thoroughly tested version of the tech to date. It is still early days, however – transaction sizes are limited, and the release is aimed at developers and “advanced users”.
Recent research on the lightning network shows signs of increased vulnerability due to the centralization of a number of nodes in the network that control a majority of funds. Developers are continuously exploring new possibilities to enhance the privacy and efficiency of the lightning, as well as ways to incorporate other technologies such as Schnorr into the network. There’s no doubt that it’ll be some time before such system-wide updates can successfully take place.


Chapter 11

What are Bitcoin Mining Pools?

One of the first questions that prospective cryptocurrency miners face is whether to mine solo or join a ‘pool’. There are a multitude of reasons both for and against mining pools. Here’s what you need to know.

Source: Shutterstock

Therefore, joining a pool creates a steady stream of income, even if each payment is modest compared to the full block reward (which currently stands at 6.25 BTC). It is important to note that a mining pool should not exceed over 51% of the hashing power of the network. If a single entity ends up controlling more than 50% of a cryptocurrency network’s computing power, it could theoretically wreak havoc on the whole network.

Difficulty level is another factor to keep in mind when considering solo mining.  It is currently so high that it’s practically impossible for soloists to make a profit mining. Unless, of course, you happen to have a garage full of ASICs sitting in Arctic conditions. If you’re a beginner, joining a mining pool is a great way to reap a small reward over a short period of time. Indeed, pools are a way to encourage small-scale miners to stay involved.



When deciding which mining pool to join, you need to weigh up how each pool shares out its payments and what fees (if any) it deducts. Typical deductions range from 1% to 10%. However, some pools do not deduct anything.

There are many schemes by which pools can divide payments. Most of which concentrate on the amount of ‘shares’ which a miner has submitted to the pool as ‘proof of work’.




There are many pool options available for mining beside bitcoin. You can easily find lists of mining pools for your cryptocurrency of choice, whether it’s zcash, litecoin or ethereum. Some popular ones are, Slush Pool and AntPool.



Chapter 12

What Can You Buy with Bitcoin?


That doesn’t mean that there are no outlets to spend your bitcoin, however, far from it. A 2019 survey done by insurance company HSB finds that more than one-third of U.S. small and mid-sized businesses accept cryptocurrency, and 59% of them purchase digital currencies for their own use. 

Among the advantages of conducting business with cryptocurrency are the ease of cross-border transactions, and anonymity (unless you want physical delivery, of course). By accepting bitcoin, merchants get access to a broader market, and don’t have to worry so much about chargebacks since bitcoin transactions are irreversible.

In 2019, AT&T became the first major U.S. mobile carrier to accept payments in cryptocurrency via BitPay


gifts, exchange, trade
Source: Shutterstock


Microsoft accepts bitcoin in its app stores, where you can download movies, games and app-based services. The leading game streaming platform Twitch also accepts payments in bitcoin and bitcoin cash for its subscriptions.

Some musicians (Bjork, Imogen Heap, G-Eazy, Dolly Parton) will let you download their music in exchange for cryptocurrency.



And if you’re hungry and live in the U.S., PizzaforCoins will get a pizza delivered to your door (depending on where you live) in exchange for bitcoin.


Some legal and accounting firms also accept payment for their services in cryptocurrency.

Of course, you could always donate to one of the bitcoin-accepting charities or crowdfunding sites, such as BitHope, BitGive or Fidelity Charitable.

For a list of offline stores near you that accept bitcoin, check an aggregator such as Spendabit or CoinMap.



Chapter 13

Is Bitcoin Legal?






































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South Africa

Johannesburg, South Africa

South Korea







United States of America







United Kingdom








Chapter 14

What is the Difference Between Litecoin and Bitcoin?

In 2009, Satoshi Nakamoto launched bitcoin as the world’s first cryptocurrency. The code is open source, which means it can be modified by anyone and freely used for other projects. Many cryptocurrencies have launched with modified versions of this code, with varying levels of success.

What are the differences between litecoin and bitcoin?
Litecoin Logo
Source: Flickr

Litecoin was announced in 2011 with the goal of being the ‘silver’ to bitcoin’s ‘gold’. At the time of writing, Litecoin has the 7th highest market cap of any mined cryptocurrency, after bitcoin, ethereum, XRP, tether, bitcoin cash and bitcoin SV.

Here’s our guide to show you the crucial difference between bitcoin and litecoin.

At-a-glance differences

bitcoin litecoin
Coin limit 21 Million 84 Million
Algorithm SHA-256 Scrypt
Mean block time 10 minutes 2.5 minutes
Difficulty retarget 2016 block 2016 blocks
Block reward details Halved every 210,000 blocks. Halved every 840,000 blocks
Initial reward 50 BTC 50 LTC
Current block reward 6.25 BTC 12.5 LTC
Block explorer
Created by Satoshi Nakamoto Charles Lee
Creation date January 3rd, 2009 October 7th, 2011
Market cap $167.28B $2.68B
 Bitcoin Statistics  Litecoin Statistics

Mining differences

Just like bitcoin, litecoin is a cryptocurrency that is generated by mining. Litecoin was created in October 2011 by former Google engineer Charles Lee. The motivation behind its creation was to improve upon bitcoin. The key difference for end-users being the 2.5 minute time to generate a block, as opposed to bitcoin’s 10 minutes. Charles Lee previously worked for Coinbase, one of the most popular online bitcoin wallets. He now dedicates his time to the Litecoin Foundation.

ASIC Mining
Source: Shutterstock

For miners and enthusiasts though, litecoin holds a much more important difference to bitcoin, and that is its different proof of work algorithm. Bitcoin uses the SHA-256 hashing algorithm, which involves calculations that can be greatly accelerated in parallel processing. It is this characteristic that has given rise to the intense race in ASIC technology, and has caused an exponential increase in bitcoin’s difficulty level.


The consequences of using scrypt mean that there has not been as much of an ‘arms race’ in litecoin (and other scrypt currencies), because there is (so far) no ASIC technology available for this algorithm. However, this is soon to change, thanks to companies like Alpha Technologies, which is now taking preorders.

GPU mining
Source: Wikipedia

To highlight the difference in hashing power, at the time of writing, the total hashing rate of the bitcoin network is over 20,000 Terra Hashes per second, while litecoin is just 95,642 Mega Hashes per second.

For the time being, ‘state of the art’ litecoin mining rigs come in the form of custom PCs fitted with multiple graphics cards (ie: GPUs). These devices can handle the calculations needed for scrypt and have access to blisteringly fast memory built into their own circuit boards.

There was a time when people could use GPU mining for bitcoin, but ASICs have made this method not worth the effort.

Transaction differences

The main difference is that litecoin can confirm transactions much faster than bitcoin. The implications of that are as follows:

  • Litecoin can handle a higher volume of transactions thanks to its faster block generation. If bitcoin were to try to match this, it would require significant updates to the code that everyone on the bitcoin network is currently running.
  • The disadvantage of this higher volume of blocks is that the litecoin blockchain will be proportionately larger than bitcoin's, with more orphaned blocks.
  • The faster block time of litecoin reduces the risk of double spending attacks – this is theoretical in the case of both networks having the same hashing power.
  • A merchant who waited for a minimum of two confirmations would only need to wait five minutes, whereas they would have to wait 10 minutes for just one confirmation with bitcoin.

Transaction speed (or faster block time) and confirmation speed are often touted as moot points by many involved in bitcoin, as most merchants would allow zero-confirmation transactions for most purchases. It is necessary to bear in mind that a transaction is instant, it is just confirmed by the network as it propagates.
