To follow this chapter, you need one of the more recent versions of Linux and Python – no older than 3.8. You could try implementing what will be covered in this chapter on other platforms, such as Mac or Windows, but Linux is recommended. You could also run Linux with virtualization software such as VirtualBox. We will use Ubuntu Linux 22.04 LTS and Python 3.10.

Assuming that you haven’t lived a secluded life as a hermit on a mountain, you have probably heard all about cryptocurrency, especially Bitcoin. Thus, you needn’t have to look far to hear about the soaring popularity of this topic, its terminology, and its growth in value.

Blockchain was regarded as the technology that would bring the dawn of a new era of justice and prosperity for mankind. It would democratize wealth. It would take the power away from the oligarchy and give it back to the people. It would protect the data of the people.

Blockchain started to be used as a payment solution without the middleman, namely Bitcoin. Then, people found out that blockchain has some other interesting properties.

First, it is transparent, meaning people can audit it to check whether there is money laundering going on or not. Second, to some extent, it gives users privacy, which can be used to avoid profiling.

Then, after Ethereum...

Most people know Bitcoin exists because of blockchain.

But what is blockchain?

It is an append-only database that consists of blocks that are linked by hashing. Here, each block contains many transactions of transferring value (but could be other things) between participants secured by cryptography; a consensus between many nodes that hold an identical database decides on which new block is to be appended next.

You don’t have to understand the definition at this point; those are a lot of words to chew on! First, I’ll explain blockchain so that you can adjust to this new knowledge as we move through this book.

Going back to the definition of blockchain, we can summarize the definition as an append-only database. Once you put something into the database, it cannot be changed; there is no undo button. We’ll talk about the ramifications of this feature in Chapter 2, Smart Contract Fundamentals. This definition entails many things and...

The most popular use of blockchain is to create cryptocurrency. As the word crypto is in cryptocurrency, you would expect that you need to master cryptography to become a blockchain programmer. That isn’t true. You only need to know two things about cryptography:

• Private keys and public keys (asymmetric cryptography)
• Hashing

We explained these previously. You don’t need to know how to design a hashing algorithm or private key and public key algorithm. You only need to get an intuitive understanding of how they work and the implications of these technologies.

Private keys and public keys enable decentralized accounts. In a normal application, you have a username and password. These two fields enable someone to access their account. However, having a private key and a public key enables someone to have an account in a decentralized manner.

For hashing, it is a one-way function, meaning that given an input, you can get the output easily...

Hashing is a function that takes an input of any length and turns it into a fixed-length output. To make this clearer, we can look at the following code example:

>>> import hashlib
>>> hashlib.sha256(b"hello").hexdigest()
'2cf24dba5fb0a30e26e83b2ac5b9e29e1b161e5c1fa7425e73043362938b9824'
>>> hashlib.sha256(b"a").hexdigest()
'ca978112ca1bbdcafac231b39a23dc4da786eff8147c4e72b9807785afee48bb'
>>> hashlib.sha256(b"hellohellohellohello").hexdigest()
'25b0b104a66b6a2ad14f899d190b043e45442d29a3c4ce71da2547e37adc68a9'

As you can see, the length of the input can be 1, 5, or even 20 characters, but the output will always be the length of 64 hexadecimal numeric characters. The output looks scrambled, and there is no apparent link between the input and the output. However, if you give the same input, it will give the same output every time:

>>> hashlib.sha256(b...

As we can see, the hashing function makes history tampering hard, but not too hard. Even if we have a blockchain that consists of 1000 blocks, it would be trivial to alter the content of the first block and change the 999 parent hashes on the other blocks with recent computers. So, to ensure that bad people cannot alter history (or at least make it hard), we must distribute this append-only database to everyone who wants to keep it (let’s call them miners). Say there are 10 miners. In this case, you cannot just alter the blockchain in your copy because the other nine miners would scold you, saying something like Hey, our records say history A but your record says B. In this case, the majority wins.

However, consensus is not just a case of choosing which blockchain has been chosen by the majority. The problem starts when we want to add a new block to the blockchain.

Where do we start? How do we do it?

The answer is that we broadcast. When we broadcast the candidate...

At the time of writing, the two most popular cryptocurrencies are Bitcoin and Ethereum.

Note

If you ask someone who knows a lot about cryptocurrencies a simple question, you may get the following answer: Bitcoin is just for sending money, but you can create a program on Ethereum. The program can be tokens, auctions, or escrow, among many other things. But that is a half-truth.

You can also create a program via Bitcoin. Usually, people call this program a script. It is necessary to provide a script in a Bitcoin transaction. A transaction in Bitcoin can be mundane, so if I want to send you 1 BTC (a unit of currency in Bitcoin) and your Bitcoin address is Z, I need to upload a script like this into the Bitcoin blockchain:

What's your public key? If the public key is hashed, does it equal Z? If
yes, could you provide your private key to prove that you own this public
key?

But it could be a little bit fancier. Let’s say you require at least...

In this chapter, we investigated the various technologies behind cryptocurrencies, such as Bitcoin and Ethereum. This technology allows us to decentralize how we store values or code. We also covered cryptography by using private and public keys to secure the integrity of data. Later, we learned about hash functions, proof of work, consensus, and the basic concepts of blockchain programming. The blockchain will be an important technology for keeping the truth. So, now is a good time to learn about this technology.

In the next chapter, we will learn about smart contracts, which are programs that live in Ethereum. A smart contract is different than a kind of program that lives on a server, such as an application written with Ruby on Rails, Laravel, or Django. The differences are more than just the syntax; the concept is radically different than a normal web application.

To learn more about the topics that were covered in this chapter, take a look at the following resources:

• https://bitcoin.org/bitcoin.pdf
• https://ethereum.org/en/developers/docs/consensus-mechanisms/pos/