Bitcoin Mechanisms and the Blockchain

This chapter provides a more in-depth discussion of the mechanism used to run the Bitcoin system and what it accomplishes. With accessible technical details, hash functions and cryptography are introduced. Then their application in Bitcoin is discussed to solve the particular problem of counterfeiting (or double-spending) in payment systems. This then leads to the role of Bitcoin’s “proof-of-work” algorithm to make the system costly in real terms, and why that is important in terms of incentives.