What are some suggestions for a Bitcoin whitepaper?

The Bitcoin whitepaper, Bitcoin: A Peer-to-Peer Electronic Cash System, was published in 2008 by Satoshi Nakamoto. Bitcoin is revolutionizing the global payments industry and people around the world are rethinking the meaning of their money. Moreover, the underlying technology and network that process Bitcoin transactions, known as blockchain, is transforming industries as varied as banking, farming, logistics, healthcare, elections and manufacturing, to name a few. All this is made possible by Satoshi Nakamoto's groundbreaking work published in 2008 which outlines what Bitcoin is and how it works, as presented in the original Bitcoin whitepaper.

How To Use This Guide

Bitcoin. com offers a simplified explanation of Nakamoto's work. We provide annotations for all 12 sections of the whitepaper. Text in italics is used to provide commentary and annotations to distinguish the author's views from those of Satoshi Nakamoto's.

1. Introduction

Bitcoin creator, Satoshi Nakamoto discusses the web's reliance on trusted third parties such as banks and credit card companies to process electronic payments. The traditional method may work for most transactions but problems do occur when financial institutions facilitate the buying and selling of goods on the internet. Here are some of the weaknesses of traditional electronic payments involving third parties:

• Transactions can be reversed since banks must mediate disputes that inevitably arise.
• Banks' intervention (i.e., mediation) increases transaction costs and this also limits the minimum practical transaction size. The reversibility of transactions becomes a problem when a provider has delivered non-reversible services.
• The possibility of a transaction's reversal hangs over everyone. And that requires people to trust a third party such as banks to resolve payment disputes.
• The system accepts a certain percentage of fraud as unavoidable. Nonetheless, fraud increases everyone's cost of doing business. Nakamoto proposes an electronic payment system that is based on cryptographic proof instead of trust.

2. Transactions

In this section, Nakamoto's description of the electronic transaction process, namely the blockchain, gets technical. In simple terms, he defines an electronic "coin" as a chain of digital signatures. Owners digitally sign a hash of the previous transaction and add a public key of the next owner to the end of the coin. A recipient of the coin, a payee, can verify the signatures in order to verify the chain of ownership.

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However, Nakamoto points out a potential problem with duplicate payments. A recipient/payee can't verify that a coin's owner didn't send the same coin to other recipients/payees, which is referred to as the double-spend problem.

3. Timestamp Server

A timestamp server takes a hash of a block of items and publicly announces the hash. The timestamp proves the existence of the data at the time. Each timestamp includes the previous timestamp in its hash. And each additional timestamp reinforces the ones before it. This sequence forms a chain.

4. Proof-of-Work

Nakamoto says that proof-of-work is used to implement a peer-to-peer distributed timestamp network (mentioned above). The process scans for a value that when hashed, results in a certain numerical expression. The timestamp network must reconcile this value with a block's hash. CPU power is needed to satisfy the proof-of-work, and the block cannot be changed without redoing the work. Later blocks are chained after it, and to change the block would require redoing all the blocks after it.

5. Network

Nakamoto outlines the steps for running the peer-to-peer network:

1. New transactions are broadcast to all nodes/computers in the network.
2. Each node collects new transactions into a block.
3. Each node works on finding a difficult proof-of-work for its block.
4. When a node finds a proof-of-work, it broadcasts the block to all nodes.
5. Nodes accept the block only if all transactions in it are valid and not already spent.
6. Nodes express their acceptance of the block by working on creating the next block in the chain, using the hash of the accepted block as the previous hash.

As mentioned in earlier sections, nodes always consider the longest chain to be the correct one and will work on extending it.

6. Incentive

The first transaction in a block is a special transaction that starts a new coin owned by the creator of the block. This achieves two things. First, the creation of a new coin rewards nodes/computers to support the network. Second, it's a way to initially distribute new coins into circulation since there is no central authority to issue them. The new coin rewards nodes -- aka Bitcoin miners -- for expending their time, CPU and electricity to make the network possible. They can also be rewarded with transaction fees. Nakamoto envisions a limited number of coins to ever enter circulation, at which point miners can be incentivized solely by transaction fees that are inflation-free. New coins also incentivize nodes to play by the rules and remain honest. An attacker would have to expend a ton of resources to threaten the system, and getting rewarded by coins and transaction fees serve as a deterrent to such fraud.

7. Reclaiming Disk Space

To save disk space, Nakamoto says that nodes can discard data from old transactions, with only the root of the discarded transaction kept in the block's hash. This enables the blockchain to remain intact, albeit with less data from old transactions. He briefly describes a process for compacting data. But with Moore's Law, Nakamoto says that the future capacity of computer hardware should be sufficient to operate the network without miners having to worry about storage space.

8. Simplified Payment Verification

In this section, Nakamoto provides a technical explanation of how to verify payments without running a full network node. That requires getting the longest proof-of-work chain and checking if the network has accepted it. The verification is reliable as long as honest nodes control the network. But an attacker can create fraudulent transactions for as long as an attacker can overpower the network. One defense against an attack is for network nodes to broadcast alerts when they detect an invalid block. Such an alert could prompt a user's software to download the full block as well as alerted transactions in order to confirm the inconsistency. Nakamoto adds that businesses that receive frequent payments may want to consider operating their own nodes to achieve more independent security and quicker verification.