For those eager to understand the workings of bitcoin and blockchain, Antony Lewis’ book, ‘The Basics of Bitcoins and Blockchains’, serves as an excellent entry point. Lewis imparts information in a clear and coherent manner, avoiding excessive technical jargon. The book illustrates the evolving landscape with the rise of new currencies.

Lewis begins by elucidating the creation of money, the existing financial system, and the role of trusted third parties. He then delves into the fundamentals of blockchain technology, features of bitcoin and other cryptocurrencies, and progresses to more intricate topics such as Ethereum, smart contracts, tokenisation, forking of cryptocurrencies, and initial coin offerings (ICOs). This book is highly recommended for those seeking a reasonable understanding of blockchain technology without being overwhelmed by technical complexities.

To comprehend cryptocurrency and token economics, delving into the history and evolution of money is crucial. Lewis dedicates a chapter to explain the concept of money, tracing its evolution since the dawn of human civilisation. He provides a bird’s-eye view of the history of money, highlighting its failures and discussing why the current form of money—fiat—may not be everlasting.

Fiat money, as we know it today, emerged after the collapse of the Bretton Woods system when many countries transitioned from the gold standard to currency backed by government decree. With the advent of the internet, early pioneers utilised technologies like cryptography to facilitate online payments. Despite these technological advancements, the basic concept of money remained unchanged, with third-party intermediaries like banks facilitating payments.

Lewis illustrates how the traditional financial system operates, explaining how money is transferred through the banking system in a way that non-bankers can appreciate. However, in October 2008, a turning point occurred when an anonymous figure named Satoshi Nakamoto introduced the concept of internet money. This innovation allows for the peer-to-peer transfer of value digitally, without the need for third-party intermediaries.

According to Lewis, this marks the first time in human history that we have a system capable of sending value from A to B without the physical movement of items or reliance on third-party intermediaries. The author suggests that this cryptocurrency system has the potential to challenge fiat money, prompting shifts in the perspectives of policymakers worldwide for various evolving reasons.

In the ever-evolving landscape of cryptocurrency, Lewis sheds light on the distinctions between digital money and internet money. Digital money, as he defines it, refers to fiat currency transacted digitally. Despite its digital nature, it still relies on a trusted bookkeeper to record ownership. On the other hand, internet money represents a pure peer-to-peer form of electronic cash, allowing direct transactions between individuals without the involvement of financial institutions.

Crucially, internet money transactions are timestamped through a process called hashing, where they are added to an unbroken chain of blocks recorded on distributed electronic ledgers. While digital money and internet money may seem similar in user experience, the fundamental difference lies in how transactions are handled.

In the realm of digital currency and traditional bank accounts, all funds are amalgamated into a single entity. The specific unit of currency spent is inconsequential—each transaction involves debits and credits facilitated by a trusted third party. Cryptocurrency, however, operates more akin to physical cash. Similar to using banknotes, every cryptocurrency payment requires specifying which ‘coin’ is being spent.

When utilising digital currency, one instructs a bank to execute the transaction on their behalf. In contrast, spending cryptocurrency involves a direct transfer from the sender to the receiver, without any intermediary banks or third-party instructions. Lewis provides a detailed explanation of this distinction, accompanied by illustrative diagrams for clarity.

As the blockchain industry advances rapidly, an updated edition of the book may be necessary. Originally published in 2021, significant developments have occurred since, including the acquisition of JP Morgan’s enterprise blockchain project Quorum by Consensys and Ethereum’s shift from Proof-of-Work to Proof-of-Stake (POS).

It’s essential to note that the book is tailored for individuals on the ground floor of blockchain technology, making it less appealing to those seeking advanced knowledge. The world of blockchain and cryptocurrency is still in its early stages, with much-untapped potential. Beyond serving as a trusted distributed database, this technology has the capacity to reshape our organisational structures, moving from centralisation to decentralisation.

The transformative impact of blockchain technology is imminent, and even Nepal cannot remain untouched. The Central Bank of Nepal has prohibited the use of cryptocurrency, tokens and DeFi, but it’s crucial to understand that the use of blockchain technology itself is not restricted. This distinction is often misunderstood.

In light of these perspectives, staying updated on this technology is crucial. Blockchain stands at a turning point today, akin to the internet in the early nineties, and comprehending its nuances is vital for a well-rounded understanding of the evolving landscape.

The Basics of Bitcoins and Blockchains

Author: Antony Lewis

Year: 2021

Publisher: Mango Media

Siddhi is the head of transaction banking at Standard Chartered Bank Nepal. He can be reached at [email protected]