The Bitcoin Whitepaper Simply Explained

• Bitcoin was introduced as a digital currency to the world in the paper called Bitcoin: A Peer-to-Peer Electronic Cash System)

The Bitcoin Whitepaper was originally published on the 31st of October, 2008 by an individual or a group of people that called themselves Satoshi Nakamoto in a cryptography mailing list on a platform called Metzdowd.)

The concept behind Bitcoin is based on cryptography, the study of secure communication technologies and development of protocols preventing the public or third parties from reading private information.)

the purpose of Bitcoin is developing computer technology for enabling multiple parties to send payments online directly to each other (“peer-to-peer cash system”) without requiring a financial institution such as a bank.)

[Double spending](https://www.bitpanda.com/academy/en/lessons/what-is-double-spending-and-why-is-it-such-a-problem/) is the potential weakness in a digital cash system - the possibility that the same unit of value (the token) could be spent twice if someone duplicates or falsifies a token.)

An electronic coin is basically a chain consisting of digital signatures. Electronic coins are actually lines of protected computer code which exist in relation to the previous code in line before them.)

The public key is needed to encrypt the transaction along with the owner’s private key to create the digital signature - it is similar to a bank account number, while the private key is similar to the access code for a bank account. Therefore the public key is also the address of the recipient, to which the owner wants to send bitcoins.)

Naturally, the next owner - the recipient - wants to ensure that the amount sent to them has not been previously spent in an earlier transaction. The only way this can be ensured is by the network agreeing on all transactions made before in the order they have been made.)

The more computers in the network, the more copies of the records, making the system even more secure. Obviously, it would be close to impossible to simultaneously steal or destroy records from thousands of computers at the same time at once. Therefore, the system is safe as long as the majority of parties operating the computers collectively agree on the longest “chain” of data records - the “valid” blockchain.)

Think of the analogy of Russian stacking dolls - a tiny doll inside a larger doll that is inside a larger doll and so on - this is what a Bitcoin transaction looks like.)

In the broadest sense, “Proof of Work” is the solving of a moderately difficult task by a computer user on their computer. This task satisfies certain set requirements and is inherently difficult to execute.)

Proof of Work as a method was invented to curb the sending of spam emails. By requiring the sender of emails to perform some small task (“work”) before they could dispatch the email, this was to ensure that no flood of emails would be dispatched.)

A number called a nonce (a “**n**umber **on**ly used on**ce**”) is added to this block to hash it.)

A block contains data - an index, the timestamp, a list of the transactions, a proof and the hash of the previous block and further information.)

To encourage computer nodes to participate in the network, Satoshi Nakamoto proposed that nodes supplying computing power should be rewarded if they are the first node to create a block. Users of the Bitcoin network would pay transaction fees, which at a later point would become the sole reward once enough coins were in circulation.)

no single company or person is in charge of running the Bitcoin network. Instead, it is operated and verified by a large community of independent computers.)

In the Bitcoin Whitepaper, it is presumed that a single block header containing no transactions would have an approximate size of about 80 bytes.)

To counter the issue of required memory, Satoshi Nakamoto proposed that once a transaction is “buried” under a sufficient number of blocks, the spent transactions before it could be “discarded” to save disk space.)

the Whitepaper suggests reducing all transactions to a single hash - a root hash - which can efficiently be done by using a Merkle tree.)

A Merkle tree or hash tree, named after the scientist Ralph Merkle is a hash-based data structure in cryptography and computer science. This structure assigns data to a key. A simple example of this concept is speed dialing on a phone - each telephone number is assigned to each key in a hash-based structure.)

In the Bitcoin network, Merkle trees are used for data verification which is efficient because hashes are used instead of a complete information file.)

At the time of the publication of the Bitcoin whitepaper in 2008, it was estimated that at least 4.2MB (megabytes) of memory storage would be needed per year. This was based on the assumption that blocks are generated every ten minutes and each block is equal to 80 bytes. Per hour, this would be equal to 80 multiplied by 6, then multiplied by the cost per day and then per year, i.e. equivalent to 80b multiplied by (6X24) multiplied by 365.)

Typical computer systems were sold with 2GB (gigabytes) of RAM in 2008, and at the time Moore's Law was predicting growth of 1.2GB per year, in the Bitcoin Whitepaper it was presumed that storage would not become a problem, even if block headers were to be kept in memory.)

to ensure that transactions are not being fabricated by an attacker on an invalid chain, Satoshi Nakamoto suggests that businesses utilising Bitcoin for frequent payments should run their own nodes for speed and increased security.)

In very simple terms, this means you do not need the entire record of the chain to verify a transaction is correct. You only need to download one branch of the merkle tree and check if it has the same root hash.)

As honest nodes would not accept a matching transaction, a fraudster would need to race the valid chain and utilise massive amounts of computing power to catch up and the probability that they would ever breakeven is miniscule.)

Bitcoin is a peer-to-peer system for trustless, electronic cash transfers that uses Proof of Work to record the public history of transactions and is highly safe against attacks as long as honest nodes control the majority of computing power.)

The network is made up of nodes that need little coordination and can join and leave at will and only accept valid blocks while rejecting invalid blocks based on a consensus mechanism.)