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Bitcoin Whitepaper

Executive Summary of Bitcoin: A Peer-to-Peer Electronic Cash System

Author: Satoshi Nakamoto | Published: 2008

Download Whitepaper
Bitcoin.org
Bitcoin: A Peer-to-Peer Electronic Cash System
October 31, 2008
Abstract. A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending...
Satoshi Nakamoto

Purpose & Problem

Traditional online payments rely on centralized financial institutions to serve as trusted third parties. This model:

  • Enables reversals and disputes, increasing costs.
  • Prevents non-reversible micropayments, which limits use cases like digital content or casual transfers.
  • Forces merchants to trust customers, raising privacy and fraud risks.

Satoshi's solution is a decentralized peer-to-peer payment system that eliminates the need for trust by using cryptographic proof and a consensus mechanism.

Core Innovation: Solving Double Spending Without a Central Authority

Bitcoin introduces a system where:

  • Transactions are publicly broadcasted.
  • A distributed timestamp server orders them using proof-of-work (PoW).
  • All nodes maintain a shared, immutable ledger (blockchain).

By chaining blocks of transactions together with computationally expensive hashing, Bitcoin ensures that the longest chain reflects the majority's consensus and the most CPU effort.

Key Components

The Network Protocol

  1. Transactions are broadcast to all nodes.
  2. Each node groups transactions into a block.
  3. They compete to find a valid PoW.
  4. Once found, the block is broadcasted and accepted only if:
    • All transactions are valid.
    • None are double-spent.
  5. Nodes begin mining the next block using the previous block's hash.

Fork Handling:

  • Temporary forks can occur.
  • Nodes resolve forks by always working on the longest valid chain.

Incentive Mechanism

  • The first transaction in each block creates new coins (the block reward).
  • This rewards miners for contributing CPU resources.
  • Over time, rewards transition to transaction fees, creating a sustainable incentive.
  • This dual system encourages honest behavior (honest mining is more profitable than fraud).
  • Distributes coins without a central authority.

Scalability & Disk Space

  • Uses Merkle Trees to store transaction hashes efficiently.
  • Old transaction data can be pruned without breaking the chain integrity.
  • Headers alone (80 bytes/block) suffice for SPV (light) clients.

Simplified Payment Verification

Lightweight clients can verify payments by:

  • Storing only block headers.
  • Requesting Merkle paths for specific transactions.
  • Security depends on honest majority.
  • Suitable for casual users; not robust against advanced attacks (e.g., Sybil attacks).

Conclusion

Bitcoin is a decentralized, secure, trustless payment network powered by cryptographic proof and economic incentives. By eliminating central authorities, it opens the door to:

  • Frictionless global payments.
  • Censorship-resistant finance.
  • A novel form of digital scarcity.

The system is:

  • Self-governing via CPU-powered consensus.
  • Robust through simplicity and decentralization.
  • Transparent yet privacy-conscious.

The Bitcoin Whitepaper was published by Satoshi Nakamoto on October 31, 2008.

bitcoin.org/bitcoin.pdf