This simplified Bitcoin whitepaper summary will launch you into the mind of Satoshi Nakamoto — a Bitcoin creator.
Satoshi Nakamoto published the Bitcoin whitepaper on October 31st, 2008, titled Bitcoin: A Peer-to-Peer Electronic Cash System.
This article summarizes this whitepaper for non-technical Bitcoin investors, enthusiasts, and researchers.
Who is Satoshi Nakamoto?
Despite several high-level investigations and research, the identity of Satoshi Nakamoto is yet to be uncovered.
Nobody knows whether Satoshi is an individual or an organization using a fictitious name.
What is Bitcoin?
Bitcoin is peer-to-peer electronic cash that allows online payments to be sent directly from one person to another without going through a financial institution such as a bank.
Payments made with Bitcoin are permanent and cannot be changed as transactions are structured to be computationally impractical to reverse.
Why Was Bitcoin Created?
Primarily, Bitcoin was created to decentralize finance.
Bitcoin is proposed as a solution to the problem of double-spending and the inherent weaknesses of the trust-based, centralized traditional financial system.
The goal of Bitcoin is to make it possible for individuals like you and me who do not know each other to do business or transact directly without having to trust a third party and with the assurance that the coins or money have not been previously spent.
More so, with the current financial system, there’s a need for the amount you can send per transaction or within 24 hours, especially abroad.
In most cases, small transactions are not supported.
Coupled with the high cost of making the payments, escalated by the need for the banks and other intermediaries to profit from every transaction, most people in different countries literarily suffer or, at best, get robbed to send money across to loved ones and business partners.
These costs and the possibility of reversed transactions can be avoided in person using physical currency. Still, there is no system to make payments over a communications channel without going through a trusted party –banks (are evil).
Bitcoin solves all of the above problems:
- Bitcoin transactions cannot be reversed
- You can send any amount –even $0.50 at a cost as low as $0.005 or less.
- No intermediary or third party is needed.
- Payments are settled instantly regardless of the distance between parties.
In simple sentences, Bitcoin was created to put the financial system in the hands of the people.
You will have control over your financial freedom and autonomy for the first time in history.
How Does Bitcoin Work?
All Bitcoin transactions are identified with a hash publicly broadcasted for everyone to see.
All hashes generated within a specific period frame (every 10 minutes) are grouped into blocks.
These blocks of transactions are linked with every new block added to all existing blocks before forming a blockchain.
For any transaction to be valid, it must have been confirmed by most “miners” who “utilize their computing powers to verify the blockchain transactions.
Once a transaction is verified and added to a block, it can’t be canceled, and the network rejects any attempt to spend the coins already included in that transaction.
As new blocks are added to the chain of blocks (blockchain), it becomes practically impossible to alter any previous transactions without re-processing all the other blocks added after it.
This is not practical at all, and that’s what makes the Bitcoin network secure and makes double-spending practically impossible.
Is Bitcoin Sustainable?
The Bitcoin network is maintained by the activities of “Miners” who help produce new blocks and verify blockchain transactions.
Miners earn block rewards for each new block they add to the blockchain.
More so, these block rewards, distributed to miners for producing new blocks, provide a way to initially and systematically distribute all Bitcoin into circulation since there is no central authority to issue them.
Miners earn 6.25 whole bitcoins for each block added to the blockchain.
In addition to the block rewards, miners are incentivized to support the network with transaction fees.
Every Bitcoin transaction is charged a small fee to pay the miners who verify and confirm such transactions on the blockchain.
Once the total number of bitcoins (21,000,000) has been mined and released to the market, miners’ lives will be entirely on transaction fees.
How about a possible 51% attack?
If a single entity or group of miners can gain more than 50% of the network, they would have to choose between using it to defraud people by stealing back their payments or using it to generate new coins by producing new blocks, ver, verifying transactions, and claiming the fees.
It is in their best interest to act in a way that supports and promotes the network’s health.
If they act in such a way to collapse the network, they stand to lose more money than everyone else combined, as they have the most significant investment in the network.
More so, an attacker can only try to change one of his transactions to take back the money he recently spent.
This means that:
- He cannot attempt to change someone else’s elections
- The transaction has to be recent. Old transactions can not easily be changed. It’s it’s nearly practically impossible.
This drastically reduces the benefits of a successful 51% attack.
I am making it not worthwhile for an attacker.
Bitcoin and Privacy
All Bitcoin transactions are publicly available for anyone to see through the Blockchain Explorer.
However, these movements of funds cannot be linked to any particular individual.
The public can see that someone is sending money to someone else, and the parties involved in the transactions are unknown.
“This is similar to the level of information released by the stock exchanges, where the time and size of individual trades –the “tape”– is made public, but without telling who the parties were.” ~Satoshi.
Additionally, users can generate new public addresses for every transaction to obfuscate their identity further in case some already identified them with a known public key or wallet address.
Summary of the Bitcoin Whitepaper Summary
Bitcoin provides a trustless means of executing electronic payments of any denomination and tactfully solves the problem of double-spending without a trusted third party.
The integrity of the Bitcoin network is maintained through a proof of work system that records a public history of transactions that quickly becomes computationally impractical for an attacker to change.
Bitcoin can be considered as the greatest invention of the century.
What do you make of Bitcoin? Share your thoughts with us in the comments section below.