In this content, we will show you what the Bitcoin White Paper is and introduce you to some interesting points. All content in this article comes directly from the bitcoin.org created by Satoshi Nakamoto in 2008.
The Bitcoin White Paper, is a series of writings made by Satoshi about all the benefits of Money that would be this "digital currency". Right there in the title, the writer drops the phrase: Bitcoin: an electronic money system made from person to person. This White Paper inspired the creation of other crypto developers and, to this day, every cryptocurrency project must have its own White Paper as a "submission".
In celebration of the 14th anniversary of the Bitcoin White Paper, we have written this article, explaining to you, dear reader, what is this famous scripture that all crypto investors talk about so much.
The entire content of this article is translated from the original document within the bitcoin.org website written by Satoshi Nakamoto, you can check it out in full here. But if you are interested in more "chewed" content, you can go down and continue to know our site.
Internet commerce has relied almost exclusively on financial institutions that serve as trusted third parties to process electronic payments. While the system works well for most operations, it still suffers from the shortcomings inherent in the trust-based model.
Completely non-reversible transactions are not possible, as financial institutions cannot avoid conflict mediation. The cost of mediation increases transaction costs, which limits the practical minimum transaction size and eliminates the possibility of occasional small transactions, and there is a broader cost in losing the ability to make non-reversible payments for non-reversible services. With the possibility of reversal, the need for trust spreads.
Merchants should be wary of their customers, pestering them for more information than they would otherwise need. A certain percentage of fraud is accepted as inevitable. These costs and payment uncertainties can be avoided live using physical currency, but there is no mechanism for making payments over a communication channel without a trusted party.
What is needed is an electronic payment system based on cryptographic proof rather than trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party. Transactions that are computationally impractical to reverse would protect sellers from fraud, and routine dispute mechanisms could easily be implemented to protect buyers. In this article, we propose a solution to the double spend problem by using a peer-to-peer distributed time server to generate computational proof of the chronological order of operations.
The system is secure as long as honest nodes collectively control more CPU power than any cooperative group of attacking nodes.
We define an electronic currency as a chain of digital signatures. Each owner transfers the coin to the next one by hashing a digital signature from the previous operation and 1 owner's public key from the next one and adding them to the end of the coin. A drawer can check the signatures to verify the ownership chain.
The problem, of course, is that the drawer cannot confirm that one of the payers has not double-spent the coin. A common solution is the introduction of a trusted central authority, or mint, that checks double spend for all transactions. After each transaction, the coin must be returned to the mint for the issuance of a new one, and only coins issued directly from the mint are reliable not to be double-spent.
The problem with this solution is that the fate of the entire monetary system depends on the company that manages the mint, with all transactions having to go through it, just like a bank. We need a way for the drawer to know if the previous owners have not signed any previous transactions. For our purposes, the oldest transaction is the one that counts, so we don't worry about later double-spend attempts.
The only way to confirm the absence of a transaction is to be aware of all transactions. In the mint-based model, the mint is aware of all transactions and decides which one came first. To achieve this goal without a trusted party, transactions must be publicly announced, and we need a system for participants to agree in a single history to the order in which they were received.
The drawer needs proof that, at the time of each transaction, most nodes agree that it is being received for the first time.
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The solution we propose starts with a timestamp server. A timestamp server works by generating a hash of a block of items and publishing the hash widely, such as in a newspaper or Usenet post [2-5].
The timestamp proves that the data must have existed at the time, obviously, in order to get into the hash. Each timestamp includes the previous one in its hash, forming a chain, with each additional timestamp reinforcing the ones that came before it.
To implement a distributed timestamp server on a peer-to-peer basis, we will have to use a proof-of-work system similar to Adam Back's Hashcash, rather than newspaper or Usenet posts. Proof-of-work involves looking for a value that when hashing, such as using SHA-256, starts with a number of zero bits. The average of the work required is exponential to the number of zero bits required and can be verified by running a single hash. 2 Item Item Block...
Hash Block Item Item... Hash Transaction Public Key Owner 1 Signature Owner 0 Hash Transaction Public Key Owner 2 Signature Owner 1 Hash Transaction Public Key Owner 3 Signature Owner 2 Hash Verify Private Key Owner 2 Private Key Owner 1 Sign Private Key Owner 3 Verify Sign For our network of timestamps, we implement proof-of-work by incrementing the block by a nonce until a value is found that gives the block hash the required amount of zero bits.
Once CPU effort has been expended to satisfy proof-of-work, the block cannot be changed without redoing the work. As other blocks are chained later, the work to change a block would include redoing all blocks after it.
Proof-of-work also solves the problem of determining representation in majority decision making. If most were based on one-IP-address-one-vote, this could be overturned by anyone capable of allocating too many IPs. Proof-of-work is essentially one-CPU-one-vote. The majority decision is represented by the longest chain, which has the most proof-of-work effort invested in it.
If most of the CPU power is controlled by honest nodes, the honest chain will grow faster and outperform any competing chains. To modify a past block, the attacker will have to redo the proof-of-work of the block and then all subsequent blocks, and then catch up and outrun the work of honest nodes. We will show later that the probability of a slower attacker succeeding decreases exponentially as subsequent blocks are added.
To compensate for the increase in hardware speed and the varying interest in running nodes over time, the proof-of-work difficulty is determined by a moving average targeting an average number of blocks per hour. If they spawn too fast, the difficulty increases.
By convention, the first transaction of a block is a special operation that starts a new currency owned by the creator of the block. This is an incentive for nodes to support the network, and provides an initial way to put coins into circulation, as there is no central authority to issue them. The steady addition of a constant amount of new coins is analogous to prospectors expending resources to put more gold into circulation. In our case, CPU time and electricity being consumed.
The incentive can also be financed with transaction fees. If the value of an outbound transaction is less than the inbound value, the difference is a transaction fee that is added to the incentive value of the block containing the transaction. Once a predetermined number of coins have already entered circulation, the incentive can migrate entirely to transaction fees and be completely inflation-free. The incentive should encourage nodes to stay honest.
If a greedy attacker is able to muster more CPU power than all honest nodes, he would have to choose between using it to defraud people by stealing their payments, or using it to generate new coins. He must find it more profitable to play by the rules, as those rules favor him with more new coins than all the others combined, as well as harming the system and the validity of his own wealth.
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The traditional banking model achieves a level of privacy by limiting access to information for the parties involved and the trusted third party. The need to publicly announce all transactions precludes this method, but privacy can still be maintained by breaking the flow of information elsewhere: by keeping public keys anonymous.
The public can see that someone is sending an amount to someone else, but no information linking the transaction to anyone else. This is similar to the level of information released by stock exchanges, where the timing and size of individual deals, the "tape", is made public, but without saying who the parties are.
Remembering: we made a brief summary of what the Bitcoin White Paper is. We put the points that we believe to be essential for the understanding of the network.
You can see the original content in the PDF below, just download it.
Lucas Lippe
The idea of freedom is fascinating and Bitcoin gives us that in many ways. Explaining ideas of a decentralized web on the Bitcoin Lovers website.
