Bitcoin (BTC): A Peer-to-Peer Electronic Cash System

Author: Satoshi Nakamoto

Abstract

Bitcoin introduces a purely peer-to-peer version of electronic cash, allowing online payments to be sent directly from one party to another without going through a financial institution. This solves the double-spending problem via a network that timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be altered without redoing the proof-of-work.

Main Concepts

• Decentralized Network: Bitcoin operates on a peer-to-peer network that is designed to allow participants to transact directly with each other without the need for a central authority.
• Double-Spending Problem: Traditional digital cash systems required a trusted third party to prevent double-spending. Bitcoin’s innovative approach uses a distributed ledger (blockchain) to eliminate the need for such a third party.
• Blockchain and Proof-of-Work: Transactions are bundled into blocks, which are linked together to form a chain. To add a block to the chain, a computationally difficult puzzle must be solved, known as proof-of-work. This mechanism secures the network against fraudulent transactions and attacks.
• Incentive System: Miners who successfully solve the proof-of-work puzzle are rewarded with newly minted bitcoins and transaction fees, incentivizing them to support the network’s operation and security.
• Transaction Verification: Transactions are verified by network nodes through cryptography and recorded in the public blockchain, ensuring their validity and irreversibility without the need for a trusted third party.

Conclusion

Bitcoin proposes a system for electronic transactions without relying on trust. By using a peer-to-peer network and cryptographic proof, Bitcoin allows for direct transactions between parties, secured by the collective computing power of its users.