Seeing Bitcoin Whitepaper As An Early History of Bitcoin Creation

Bitcoin Cash Bitcoin - Seeing Bitcoin Whitepaper As An Early History of Bitcoin Creation. The Bitcoin whitepaper, Bitcoin: Peer-to-Peer Electronic Cash System, published in 2008 by Satoshi Nakamoto.

Bitcoin revolutionized the global payments industry for $1.8 trillion and people around the world are rethinking the meaning of their money. In addition, the underlying technology and network of Bitcoin transactions, known as blockchains, is transforming diverse industries such as banking, agriculture, logistics, health care, electronics and manufacturing, to name a few.
bitcoin wallpaper

Bitcoin Wallpaper - An Early History of Bitcoin Creation

All of this was made possible by the groundbreaking work of Satoshi Nakamoto published in 2008 that outlines what Bitcoin is and how it works. There are many projects now with the word "bitcoin" in it. Bitcoin is actually one that best suits the original vision of Bitcoin, as presented in a whitepaper. How To Use This Guide?
We offer a simple explanation of Nakamoto's work. We give annotations for all 10 parts of the whitepaper.

The text in italics is used to comment and distinguish the author's view of Satoshi Nakamoto's work.

1. Introduction of Bitcoin

Bitcoin creator Satoshi Nakamoto discusses web dependency on trusted third parties such as banks and credit card companies to process electronic payments. Traditional methods can work for most transactions but problems occur when financial institutions facilitate the purchase and sale of goods on the internet.

Satoshi Nakamoto - Bitcoin Creator

Here are some of the disadvantages of traditional electronic payments involving third parties:

  • Transactions can be reversed because the bank must mediate an inevitable dispute arose.
Think of regular disputes between merchants, consumers and others, such as payment processors, PayPal or tax authorities.

  • Bank intervention (ie, mediation) increases transaction costs and this also limits the size of the minimum practical transaction. Conversely the transaction becomes a problem when the shipping service provider does not reverse.
Consumers often purchase low-cost items on the web, such as $ 5 keychains and $ 10 eyeglasses. However, the bank's involvement costs a lot and these costs are passed on to consumers through transaction fees and other fees. Consider all the costs of mediation and litigation that accumulate in a given year and you can see that transaction costs can be significant. Especially if the service provider finished he must be paid properly. But the current system allows transactions to be reversed, making providers at risk unpaid.

  • The likelihood of a transaction reversal depends on everyone. And it requires people to trust a third party like a bank to resolve a payment dispute.
Many traders and consumers do not want to trust the financial institution. The price is expensive; may not be trusted; often hacked; and often giving too much information to the government without informing the affected parties. All this also creates privacy issues. In this section, Nakamoto outlines the limitations of traditional payment systems, and he prepares an audience for his proposed solution.

  • The system accepts a certain percentage of fraud as can not be avoided. Nevertheless, cheating increases the cost of doing business for everyone. Nakamoto proposed an electronic payment system based on cryptographic evidence and not trust.
Cryptography involves the use of codes and protocols to build secure communications.

Such a system would let the two parties transact with each other. The new method, Bitcoin, has the following features:
  1. Peer-to-peer payments through the online network.
  2. Third party removal and replace trust with verification.
  3. The transaction will be irreversible and Nakamoto believes that irreversibility will protect the seller from cheating. Escrow mechanisms can be implemented to protect buyers.
  4. The peer-to-peer distributed timestamp server will generate mathematical proofs of the chronological order of transactions. This system is safe provided that honest participants collectively control more computing power than attackers / hackers.

Nakamoto believes that it is better to verify transactions than to trust external third parties, especially when it comes to something as important as money. Uncertainty of transactions gives the belief that the overall payment system is strong. Second, irreversibility minimizes fraud, he says. Decentralized computers will prove the exact sequence of these irreversible transactions, thereby generating user trust that records on electronic audit paths, blockchain, valid and accurate.

2. Transaction of "Cryptocurrency"

In this section, Nakamoto's description of the electronic transaction process, ie blockchain, gets technical. Simply put, it defines an electronic "coin" as a series of digital signatures. The owner digitally signs the hash of the previous transaction and adds the next owner's public key to the end of the coin. The recipient of the coin, the payee, can verify the signature to verify the ownership chain.
how bitcoin trasaction work

How Bitcoin Trasaction Work

Bitcoin is nowhere, at least not in the traditional sense of physical money. In contrast, Nakamoto's concept of electronic "coins" is a verifiable chronological sequence of digital signatures. For an illustration, think of Nakamoto's virtual coin as a UPS or FedEx package you entered at your door before sending it to a forwarding address. But the difference is the publicly available booklet is placed right on the packing slip that shows the entire history of the previous submissions from the same package. The information includes all originating addresses and timestamps detailing where and when exactly each delivery takes place. Such a thorough audit trail, he argues, will provide assurance to the recipient and the entire network that the chain of delivery / transactions is accurate and secure.

However, Nakamoto points out potential issues with duplicate payments. The payee / payee can not verify that the coin owner does not send the same coin to the other payee / recipient, which is called a double-spending issue. For example, John has only one Bitcoin but sends one coin to two different merchants - two Bitcoins with only one coin of origin. To address the issue of double spending without relying on a third party, Nakamoto said that all transactions must be publicly announced. Secondly, all payment system participants must adhere to the same timeline so that everyone agrees with a single transaction history of the received order.

The public timeline and history of all transactions prevents duplicate spending because later transactions would be considered invalid, or perhaps false, payments of the same coin. Each coin has a unique timestamp and the previous transaction will be accepted as a legitimate payment. One coin, one payment. Sending the same coins to the second merchant, as per the example above, will show different timestamps that occur later in the timeline. And that will cancel the second payment / transaction.

3. Timestamp Server of 'cryptocurrency'

The timestamp server takes a hash of the item block and declares its hash openly. Timestamp proves the existence of data at that time. Each timestamp includes the previous time stamp in its hash. And each additional timestamp reinforces the previous one. This sequence forms a chain.
bitcoin timestamp server

Bitcoin timestamp server

Here we see the structure of the block that appears. Timestamps are key to preventing spending and double fraud. It's almost impossible to send duplicate coins because each coin contains a different chronological timestamp. Think back to the UPS / FedEx packet analogy. Each delivery contains a unique timestamp on the packing slip, and it will mark the exact time of every public ledger submission.

Bitcoin file size in bytes increases as transaction history gets bigger. And larger files cause longer processing time. Transaction processing - or mining - constantly requires more CPU power to verify transactions because the digital recordings themselves grow in size. Continuing our example, the packaged slip on the same UPS / FedEx package continues to accrue in size because more submissions mean more history records all submissions ever made.

4. The Proof-of-Work of Bitcoin

Nakamoto said that proof-of-work is used to implement a peer-to-peer distributed timestamp network (mentioned above). The scan process for that value when it hashed, generates a certain numerical expression. The timestamp network must reconcile this value with a hash of blocks. CPU power is required to satisfy the proof-of-work, and blocks can not be changed without repeating the work. Then the blocks are chained after that, and to change the block will require repetition of all blocks afterwards.
Proof of work of Bitcoin

Proof of work of Bitcoin

Language may be technical but the concept is simple. The work-proof is what protects the blockchain. Nakamoto said that the hashes created by the timestamp server are assigned a unique number which is then used to identify the hash in the blockchain. Inherent in this unique number is a mathematical puzzle that the computer must complete before the transaction can take place. Once the correct answer is given, it serves as proof that the work that has been determined has been done.

When someone sends an electronic coin, they must take a unique hash number and solve the inherent mathematical puzzles. The answer is then forwarded to the receiver to check whether the solution is correct - an important validation step. If the answer is correct, payment / transaction takes place and adds blockchain length. Otherwise, the proposed transaction is rejected.

Proof-of-work provides one voice per CPU, not an IP address. Otherwise, an attacker can allocate multiple IPs in an attempt to hack the network. Second, the longest chain block serves as evidence that the CPU is investing larger amounts of work in the longer chain. This process secures blockchain by requiring potential attackers to repeat the block's work and all the subsequent blocks (solving all the mathematical puzzles) and then trying to solve the work of all honest computers on the network. Nakamoto said that this would be a very difficult task for an attacker to do that, and that the probability of success decreases exponentially, the more blocks are added to the chain.

So how does proof-of-working blockchain work? In layman's terms, the honest CPU in the network solves every problem of hash math. When this computing puzzle is solved, these beams are combined into chronologically arranged chains. So the term blockchain. It validates the entire system that all the necessary "math jobs" have been completed. The attacker must repeat all the completed puzzles and then go beyond the honest CPU work to create longer chains - a feat that would be highly unlikely if impossible. This order makes the Bitcoin transaction unalterable. Nakamoto points out that the honest knot on the network collectively has more CPU power than the attacker.

5. Cryptocurrency Network
Nakamoto outlines the steps to run a peer-to-peer network:
  • New transactions are broadcast to all nodes / computers on the network.
  • Each node collects new transactions into one block.
  • Each node works to find hard work evidence to block it.
  • When a node finds a proof-of-work, it sends blocks to all nodes.
  • Node accepts a block only if all transactions in it are valid and have not expired.
  • Nodes express their acceptance of the block by working on the next block creation in
  • chain, using the hash of the received block as the previous hash.
bitcoin cryptocurrency network

Bitcoin cryptocurrency network

As mentioned in the previous section, the node always assumes the longest chain to be correct and will work to extend it.

This section shows why it is important to announce transactions to all nodes. This provides the basis for verifying the validity of each transaction as well as any block in blockchain. As mentioned earlier, each node solves a proof-of-work puzzle and thus always recognizes the longest chain being the correct version. As time passes, blockchain records grow and provide assurance throughout the network of validity.

6. Bitcoin Incentives
The first transaction on the block is a special transaction that initiates a new coin owned by the creator of the block. This achieves two things. First, the creation of a new coin gives a reward node / computer to support the network. Secondly, this is the way to initially distribute new coins into circulation because there is no central authority to publish them.
bitcoin incentive program

Bitcoin incentive program.

New coins reward nodes - aka Bitcoin miners - to spend time, CPU and electricity make networking possible. They can also be rewarded with transaction fees. Nakamoto envisioned a limited number of coins to enter the circulation, where miners could be given incentives only with inflation-free transaction costs. New coins also provide incentives on the knot to play by the rules and stay honest. Attackers have to spend a ton of resources to threaten the system, and getting rewards from coins and transaction fees becomes a barrier to the fraud.

Gold mining requires labor, water and equipment and this is an activity similar to that of Bitcoin mining. The miners of electronic coin processing transactions, in which they are rewarded Bitcoin fees and / or new transactions. Since a maximum of 21 million Bitcoin will be mined, the system can be free of inflation. Therefore, Bitcoin can serve as a preserver of value, similar to gold. Compare with fiat currency, like U.S. dollars. Due to inflation, the dollar has devalued nearly 97 percent since 1913.

Bitcoin incentive program is a mechanism that protects peer-to-peer electronic payment systems. The new Bitcoin publishing as well as transaction fees keep the nodes honest. Because it is not feasible to attack the system that forms the foundation of their wealth. As the saying goes, you do not bite the hand that feeds you.

7. Reclaiming Disk Space
To save disk space, Nakamoto said that nodes can remove data from old transactions, with only the roots of discarded transactions stored in the hash block. This allows the blockchain to remain intact, albeit with less data than the old transaction. He briefly describes a process for compressing the data. But with Moore's Law, Nakamoto said that future computer hardware capacity should be enough to operate the network without the miners having to worry about the storage space.

8. Simplified Payment Verification
In this section, Nakamoto provides a technical explanation on how to verify payments without running full network nodes. It requires the longest chain of proof of work and checks if the network has received it. Reliable verification during an honest node controlling the network. But the attacker can make fraudulent deals as long as the attacker can beat the network.
Simplified Payment Verification in Bitcoin

Simplified Payment Verification in Bitcoin.
One defense against attacks is for network nodes to broadcast alerts when they detect invalid blocks. Such warnings may require the user's software to download the full block and also the alerted transaction to confirm the inconsistency. Nakamoto added that businesses that receive payments often may want to consider operating their own vertices to achieve more independent security and faster verification. There are non-Bitcoin blockchain protocols applied by large companies outside of finance. For example, companies can create an invitation protocol only that selects certain parties to participate in a private node network. The point is, there are many ways to create a blockchain network that follows a different set of verification rules. Nakamoto explained one way to do it for the peer-to-peer payment system, but he said businesses might want to adjust their processes based on their own unique circumstances.

9. Combining and Separating Values
Combining the number of transactions will result in more efficient transfers than making separate transactions for every penny involved.

In other words, it would be easier and more efficient to send three Bitcoins in one transaction than to make three transactions from one Bitcoin each, assuming the coins are sent to the same receiver.
bitcoin combining and separating values

Combining and separating values

To allow the transaction value (amount) to be shared or combined, the transaction can contain multiple inputs and outputs. There can be single or multiple inputs. But there are only two maximum results: one for payment, and one return change, if any, back to the sender.

This process allows payment of a certain amount. A sender can send Bitcoin payments to other parties and recover the changes if necessary.

10. Privacy

With traditional payments, users get privacy when banks limit the information available to the parties involved as well as third parties. With peer-to-peer networks, privacy can still be achieved even if the transaction is announced. This is done by keeping anonymous public keys.

The network may be able to see the payment amount sent and received, but the transaction is not related to identity. In addition, Nakamoto proposes that a new private key should be used for each transaction in order for payments not to be related to the public owner.

To maintain privacy, Nakamoto said it is important public keys to keep anonymous user identities. While everyone may be able to view transactions, no personally identifiable information can be distributed.

11. Calculation

It's very unlikely for an attacker to make an alternative chain faster than an honest chain. The node will not accept any invalid transactions or blocks that contain it. In addition, the attacker is limited to what he can do: He can only try to change one of his own transactions to get the coin he just spent.
Bitcoin calculation

Bitcoin calculation

The probability that the attacker manages to drop exponentially more valid blocks is added to the chain. Nakamoto said that the attacker must be lucky early on to have a chance away. In addition, the receiver creates a new public key and assigns it to the sender shortly before signing. This makes it difficult for attackers to commit fraudulent transactions through parallel chains.

There is a higher possibility that the honest knot will find the block faster than the attacker. It would be very difficult for an attacker to solve some successive proof-of-work puzzles faster than any other honest node. Every 10 minutes, there is a new puzzle solved by the nodes in the network.

12. Conclusions

The peer-to-peer system for electronic payments relies on a distributed network of honest nodes to validate transactions. Validation replaces the need to trust an expensive third party like a bank. Electronic coins are made of digital signatures, and the proof-of-work blockchain prevents spending twice as much. The system remains secure provided that an honest node controls more CPU power than the attacker. Additionally, the node receives the older block as valid and works to expand it. This protocol rejects invalid blocks, and potential fraud, in the process. Rules and incentives can be enforced by using a voting system.

Also Read:

How to Buy Bitcoin Online for You! Best Time To Buy a Bitcoin!
Realtime Bitcoin Price Chart on Market Cap To Watch

At the end, Nakamoto said that "The network is solid in its unstructured simplicity." Yes indeed!

Related Bitcoin Cash Bitcoin Articles:

Formulir Kontak


Email *

Message *

Scroll to top