Contemporary · Crypto · Whitepaper

Bitcoin: A Peer-to-Peer Electronic Cash System

Satoshi Nakamoto · 2008

"A decentralized, trustless electronic cash system using proof-of-work to solve double-spending without intermediaries."

The idea

Digital cash has an obvious problem: a digital file is trivially easy to copy, so what stops someone from spending the same digital coin twice? Historically this was solved by having a trusted central authority (a bank) keep the official ledger of who owns what. Nakamoto's proposal removes the need for that trusted third party entirely: every transaction is broadcast to a network of computers, bundled into 'blocks,' and each block is cryptographically chained to the one before it. Network participants ('miners') compete to solve a computationally expensive puzzle to add the next block, and the network simply agrees that whichever chain has the most accumulated computational work behind it is the true history.

Why it works

The mechanism (proof-of-work) makes rewriting history expensive on purpose. To double-spend a coin, an attacker would need to secretly build an alternate chain of blocks starting from before the transaction they want to reverse, and make that alternate chain longer (more computational work) than the real chain the rest of the network is building — which requires out-computing the majority of the network's combined processing power simultaneously, an enormously expensive and impractical feat as the network grows. Because everyone independently verifies the chain with the most accumulated proof-of-work, no central party needs to be trusted to keep the ledger honest — trust is replaced by raw computational cost.

The takeaway — recall it first

Check your understanding

How does Bitcoin prevent double-spending without a central trusted authority like a bank?

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