CS120: Bitcoin for Developers I

# CS120: Bitcoin for Developers I

## Course Overview

Welcome to **CS120: Bitcoin for Developers I**, your comprehensive, hands-on guide to understanding and building on the world’s first and most secure blockchain. In an age of rapid financial and technological innovation, Bitcoin has emerged as a revolutionary force, and the demand for skilled developers who can harness its power has never been higher. This course is meticulously crafted to take you from a developer with no prior Bitcoin experience to a confident practitioner, capable of building real-world applications on the Bitcoin network. [1]

This is not just a theoretical overview of Bitcoin. We will dive deep into the technical details of the protocol, exploring the cryptography, data structures, and network communication that make Bitcoin work. You will learn by doing, with practical coding examples and projects that will solidify your understanding and give you the skills you need to start building your own Bitcoin applications. We have structured this course to be the ultimate resource for developers, with a strong emphasis on practical application and career-focused learning. [2]

Throughout this course, we will explore the core components of the Bitcoin protocol, including transactions, scripts, blocks, and the peer-to-peer network. We will also delve into the world of Bitcoin wallets, learning how to generate keys and addresses, and how to securely store your bitcoins. To provide a rich and engaging learning experience, we have embedded video lectures from leading experts in the field, including content from the Saylor Academy’s CS120 course and other renowned educators. [3]

Whether you are a seasoned developer looking to enter the world of blockchain or a student eager to learn the technology of the future, this course will provide you with the knowledge and skills to succeed. And, in the spirit of Bitcoin, this course is completely free and open to everyone.

## What You Will Learn

This course is designed to provide a deep and practical understanding of Bitcoin development. Here is a detailed breakdown of the topics we will cover:

| Topic | Key Concepts | Real-World Applications |
| ———————– | —————————————————————————————————————————————– | ————————————————————————————————————————- |
| **Bitcoin Fundamentals** | The history of Bitcoin, the problems it solves, and its core design principles. | Understanding the value proposition of Bitcoin and its potential to disrupt traditional finance. |
| **Cryptography Essentials** | Hash functions (SHA-256), public-key cryptography (ECDSA), and digital signatures. | Securing transactions, verifying ownership of bitcoins, and ensuring the integrity of the blockchain. |
| **Transaction Structure** | Inputs, outputs, the Unspent Transaction Output (UTXO) model, and transaction fees. | Creating and validating Bitcoin transactions, and understanding how value is transferred on the network. |
| **Bitcoin Script** | The stack-based scripting language used to lock and unlock transaction outputs, and the implementation of simple smart contracts. | Creating multi-signature wallets, implementing payment channels, and building other advanced Bitcoin applications. |
| **Wallets & Keys** | Hierarchical Deterministic (HD) wallets, seed phrases, key derivation, and different address types (P2PKH, P2SH, Bech32). | Securely storing and managing bitcoins, and creating user-friendly wallet applications. |
| **The Bitcoin Network** | The peer-to-peer network topology, how nodes discover each other, and how transactions and blocks are propagated. | Building applications that interact directly with the Bitcoin network, and understanding how the network reaches consensus. |
| **The Blockchain** | The structure of blocks, the process of mining, and the concept of proof-of-work. | Understanding how the blockchain provides an immutable and censorship-resistant ledger of all transactions. |
| **Development Tools** | Using Bitcoin Core as a development environment, and leveraging popular Bitcoin libraries and APIs. | Building robust and scalable Bitcoin applications. |

## Why Become a Bitcoin Developer?

The demand for skilled blockchain developers, and particularly Bitcoin developers, is exploding. As more and more companies and industries begin to explore the potential of this groundbreaking technology, the opportunities for developers who can build on the Bitcoin network are immense. By mastering the concepts in this course, you will be well-equipped to pursue a career as a Bitcoin developer, a blockchain engineer, or a cryptocurrency consultant. [4]

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## Chapter 1: The Cryptographic Foundations of Bitcoin

At the heart of Bitcoin is a set of powerful cryptographic tools that provide the security, integrity, and immutability of the network. This chapter will introduce you to the fundamental cryptographic concepts that make Bitcoin possible.

### 1.1 Hash Functions: The Digital Fingerprint

A **hash function** is a mathematical function that takes an input of any size and produces a fixed-size output, known as a hash. The hash is a unique “fingerprint” of the input data. Even a small change in the input will result in a completely different hash. Bitcoin uses the SHA-256 hash function extensively, for everything from creating addresses to the mining process.

### 1.2 Public-Key Cryptography: The Key to Ownership

**Public-key cryptography**, also known as asymmetric cryptography, uses a pair of keys: a public key and a private key. The public key can be shared with anyone, while the private key must be kept secret. In Bitcoin, your private key is what gives you ownership of your bitcoins. You use your private key to create a digital signature, which proves that you have the authority to spend your bitcoins.

### 1.3 Digital Signatures: The Proof of Authenticity

A **digital signature** is a cryptographic mechanism used to verify the authenticity and integrity of a message. In Bitcoin, a digital signature is created by signing a transaction with your private key. Anyone can then use your public key to verify that the signature is valid and that the transaction has not been tampered with.

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## Chapter 2: The Anatomy of a Bitcoin Transaction

Transactions are the lifeblood of the Bitcoin network. They are the messages that transfer value from one person to another. In this chapter, we will dissect the structure of a Bitcoin transaction and explore how they are created, validated, and added to the blockchain.

### 2.1 Inputs and Outputs: The Building Blocks of Transactions

A Bitcoin transaction is composed of **inputs** and **outputs**. An input is a reference to a previous transaction output that you are spending. An output specifies the amount of bitcoin you are sending and the address you are sending it to. The sum of the inputs must be greater than or equal to the sum of the outputs. The difference, if any, is the transaction fee that is paid to the miner who includes the transaction in a block.

### 2.2 The Unspent Transaction Output (UTXO) Model

Bitcoin uses the **Unspent Transaction Output (UTXO)** model to track the ownership of bitcoins. A UTXO is an output of a previous transaction that has not yet been spent. Your Bitcoin wallet balance is the sum of all the UTXOs that you control.

### 2.3 Transaction Fees: The Price of Admission

**Transaction fees** are an important part of the Bitcoin ecosystem. They serve two purposes: they incentivize miners to include your transaction in a block, and they help to prevent spam on the network. The appropriate transaction fee depends on the size of your transaction and the current level of network congestion.

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## References

[1] Bitcoin Developer Documentation. (n.d.). *Developer Guides*. Bitcoin.org. https://developer.bitcoin.org/devguide/

[2] Learn Me A Bitcoin. (n.d.). *Technical Guide*. https://learnmeabitcoin.com/technical/

[3] Saylor Academy. (2023, February 1). *Bitcoin for Developers Study Session #1*. YouTube. https://www.youtube.com/watch?v=K_hy6_MdEGc

[4] Song, J. (2019). *Programming Bitcoin: Learn How to Program Bitcoin from Scratch*. O’Reilly Media.

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## Chapter 3: Bitcoin Script: The Language of Smart Contracts

Bitcoin Script is a simple, stack-based programming language that is used to define the conditions under which a transaction output can be spent. It is the foundation of Bitcoin’s smart contract capabilities, and it allows for a wide range of complex transaction types.

### 3.1 The Stack-Based Execution Model

Bitcoin Script works like a reverse Polish notation calculator. It uses a stack, which is a data structure that allows you to push and pop items. The script is executed from left to right, and each item is either data to be pushed onto the stack or an operator that acts on the items at the top of the stack.

### 3.2 Common Script Templates

While Bitcoin Script is very flexible, most transactions use one of a few standard script templates. The most common template is the Pay-to-Public-Key-Hash (P2PKH) script, which is used to send bitcoins to a standard Bitcoin address. Other common templates include Pay-to-Script-Hash (P2SH), which is used for multi-signature wallets, and Pay-to-Witness-Public-Key-Hash (P2WPKH), which is used for SegWit transactions.

### 3.3 Building a Multi-Signature Wallet

One of the most powerful features of Bitcoin Script is the ability to create **multi-signature (multi-sig)** wallets. A multi-sig wallet requires more than one private key to authorize a transaction. This is a great way to improve security, as it means that a single compromised key will not be enough to steal your bitcoins.

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## Chapter 4: Wallets and Keys: Managing Your Bitcoin

In this chapter, we will explore the different types of Bitcoin wallets and the best practices for managing your keys. A Bitcoin wallet does not actually store your bitcoins; instead, it stores your private keys, which are the secret codes that give you access to your bitcoins.

### 4.1 Hierarchical Deterministic (HD) Wallets

**Hierarchical Deterministic (HD) wallets** are the industry standard for managing Bitcoin keys. An HD wallet is a system that derives all of your keys from a single master seed. This makes it easy to back up and restore your wallet, as you only need to keep a single seed phrase safe.

### 4.2 Seed Phrases and Key Derivation

A **seed phrase**, also known as a mnemonic phrase, is a list of 12 to 24 words that can be used to restore your Bitcoin wallet. The seed phrase is used to generate the master private key, which is then used to derive all of the other keys in your wallet. This process is known as key derivation.

### 4.3 Address Types: P2PKH, P2SH, and Bech32

There are several different types of Bitcoin addresses, each with its own advantages and disadvantages. The most common address types are:

– **P2PKH (Pay-to-Public-Key-Hash):** The original Bitcoin address format. These addresses start with the number 1.
– **P2SH (Pay-to-Script-Hash):** Used for multi-signature wallets and other complex scripts. These addresses start with the number 3.
– **Bech32:** The native SegWit address format. These addresses start with “bc1” and are more efficient than the older address formats.

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## Chapter 5: The Bitcoin Network: A Peer-to-Peer System

The Bitcoin network is a decentralized, peer-to-peer network of computers that work together to maintain the blockchain. In this chapter, we will explore how the network is structured and how nodes communicate with each other.

### 5.1 The Peer-to-Peer Network Topology

The Bitcoin network is a mesh network, which means that there is no central server. Instead, each node is connected to several other nodes, and they all work together to propagate transactions and blocks across the network. This makes the network very resilient to censorship and attack.

### 5.2 Node Discovery and Communication

When a new node joins the network, it needs to find other nodes to connect to. It does this by querying a set of DNS seeds, which are hardcoded into the Bitcoin software. Once a node has connected to a few other nodes, it can then ask them for a list of their peers, and so on, until it has a good number of connections.

### 5.3 Propagating Transactions and Blocks

When you create a new transaction, your wallet sends it to the nodes that it is connected to. These nodes then validate the transaction and, if it is valid, they send it to their peers. This process continues until the transaction has been propagated to the entire network. A similar process is used to propagate new blocks.

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## Chapter 6: The Blockchain: An Immutable Ledger

The blockchain is the heart of Bitcoin. It is a distributed, immutable ledger of all the transactions that have ever taken place on the network. In this chapter, we will explore the structure of the blockchain and the process of mining, which is how new blocks are added to the chain.

### 6.1 The Structure of a Block

A **block** is a data structure that contains a list of transactions, as well as some other information, such as a timestamp, a reference to the previous block, and a nonce. The nonce is a random number that is used in the mining process.

### 6.2 The Process of Mining

**Mining** is the process of finding a nonce that, when combined with the other information in the block and hashed, produces a hash that is below a certain target. This process is known as proof-of-work, and it is what makes the blockchain so secure. The first miner to find a valid nonce gets to add the block to the blockchain and is rewarded with a certain number of newly created bitcoins.

### 6.3 The Consensus Mechanism

The Bitcoin network uses a **consensus mechanism** to ensure that all nodes have the same copy of the blockchain. The consensus mechanism is based on the principle of proof-of-work. The longest chain is considered to be the valid chain, and all nodes will work to extend the longest chain.

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## Chapter 7: Development Tools: Building on Bitcoin

Now that you have a solid understanding of the Bitcoin protocol, it is time to start building. In this chapter, we will introduce you to some of the most popular tools and libraries for Bitcoin development.

### 7.1 Bitcoin Core: The Reference Implementation

**Bitcoin Core** is the reference implementation of the Bitcoin protocol. It is a full node, which means that it downloads and validates the entire blockchain. Bitcoin Core also provides a JSON-RPC API that you can use to interact with the Bitcoin network programmatically.

### 7.2 Bitcoin Libraries and APIs

There are a number of excellent libraries and APIs that you can use to build Bitcoin applications. Some of the most popular libraries include:

– **BitcoinJS:** A JavaScript library for Bitcoin development.
– **python-bitcoinlib:** A Python library for Bitcoin development.
– **NBitcoin:** A .NET library for Bitcoin development.

### 7.3 Building Your First Bitcoin Application

In this section, we will walk you through the process of building a simple Bitcoin application. We will show you how to generate a new Bitcoin address, how to check the balance of an address, and how to create and send a transaction.

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## Chapter 8: Security Best Practices

Security is of the utmost importance when you are working with Bitcoin. In this chapter, we will discuss some of the most important security best practices for Bitcoin developers.

### 8.1 Key Management

**Key management** is the process of securely storing and managing your private keys. The most important rule of key management is to never store your private keys on a computer that is connected to the internet. Instead, you should use a hardware wallet or a paper wallet to store your private keys.

### 8.2 Transaction Signing

**Transaction signing** is the process of using your private key to authorize a transaction. It is important to only sign transactions that you have created yourself. You should never sign a transaction that has been created by someone else, as this could give them control of your bitcoins.

### 8.3 Protecting Against Common Attacks

There are a number of common attacks that you should be aware of when you are working with Bitcoin. These attacks include:

– **Phishing:** An attempt to trick you into revealing your private keys.
– **Malware:** Software that is designed to steal your private keys.
– **51% attack:** An attack on the Bitcoin network that can be used to reverse transactions.

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## Conclusion: Your Journey as a Bitcoin Developer

Congratulations on completing CS120: Bitcoin for Developers I! You have taken a significant step in your journey to becoming a proficient Bitcoin developer. You have gained a deep understanding of the fundamental concepts of Bitcoin, from the cryptography that secures the network to the peer-to-peer communication that makes it so resilient. You have also learned how to use the tools and libraries that you need to start building your own Bitcoin applications.

The world of Bitcoin is constantly evolving, and there is always more to learn. We encourage you to continue your studies, to experiment with the technology, and to get involved in the Bitcoin community. The future of finance is being built today, and you have the skills to be a part of it.