The Bitcoin Whitepaper for Children

A way for people to send money to each other using computers without needing a bank or other middleman

10 min readJan 23, 2023

Abstract

Imagine you want to give your friend some money online, like you would give them money in person. But instead of giving them money through a bank or store, you can give it to them directly through the Internet. This is what we call ‘electronic cash.’ We have a way to make sure no one can cheat and take the same money twice, by using something called a ‘peer-to-peer network.’ It’s like a group of computers that talk to each other and keep track of all the money being sent. They make sure the money goes to the right person and that no one takes it twice. And the more computers we have working together, the safer it is for everyone. It’s like a big team working together to make sure everything is fair and honest.

Introduction

Sometimes when we buy things online, we have to use a bank or another company to help us pay for it. But, sometimes these companies can make mistakes or cause problems. We want to make a new way to pay for things online that doesn’t need these companies to help. It’s like a secret code that only the person buying and the person selling know and that can’t be changed or taken back. This way, the person selling doesn’t have to worry about getting tricked and the person buying can pay for small things easily. It’s like magic money that goes straight to the right person and can’t be taken back. And we use a group of computers to make sure everything is safe and fair.

And we use a group of computers to make sure everything is safe and fair

Transactions

Imagine you have a special coin that you can use to buy things online. You can give it to your friend, and they can give it to their friend, and so on. Each time someone gives the coin to someone else, they write their name on it like a signature. The person getting the coin can check all the signatures to make sure it’s a real coin. The problem is, sometimes people cheat and use the same coin twice. To stop this, some people use a special helper, like a bank, to make sure the coin is not used twice. But this helper can make mistakes or cause problems. We want to make a new way to use the coin that doesn’t need any helpers. We want to make sure that when people use the coin, they tell everyone else so that no one can cheat. And we want to make sure that when people use the coin, most people agree that it’s the first time the coin is used. This way, the coin is safe and fair for everyone.

Timestamp Server

We have an idea to make sure that the special coin is not used twice. We will use something called a ‘timestamp server.’ It’s like a helper that makes a special mark on the coin every time it’s used. It’s like a big book that writes down all the times the coin is used and in what order.

It’s like a big book that writes down all the times the coin is used and in what order

This way, everyone can see when the coin was used and if someone is trying to cheat. And every time the coin is used, the timestamp server will add a new mark to the coin and the book, like a chain of marks. So, every mark is connected to the last one and makes it stronger. This way, no one can change the marks or cheat with the coin.

Proof-of-Work

To make sure that the timestamp server is fair and works well, we will use something called ‘proof-of-work.’ It’s like a game that all the computers in the group play to make sure they are all working together. The game is to find a special number that makes a secret code (hash) start with a lot of zeroes.

The game is to find a special number that makes a secret code (*hash*)

The more zeroes, the harder the game is, and the more computers that play, the harder the game gets. Once a computer finds the special number, it can put it in a block and add it to the chain of marks. And once it’s in the chain, no one can change it without playing the game again and making all the blocks after it again. This way, the chain with the most blocks that have been made with the most work (proof-of-work) is the one that counts. And if most of the computers are honest and playing the game, they will make the longest chain and no one can cheat. And to make sure the game is not too easy or too hard, we have a rule that changes the game depending on how fast the blocks are being made.

Network

This is how the network works:

When someone wants to use the special coin, they tell everyone in the network.
All the computers in the network collect all the new uses of the coin into a block.
Each computer plays the proof-of-work game to make sure the block is valid.
When a computer finds the special number, it tells everyone in the network about the new block.
All the computers check the new block to make sure all the coin uses are real and haven’t been used before.
If the block is good, all the computers start working on the next block, using the special code (hash) of the last block. All the computers always think that the longest chain is the right one and they keep adding blocks to it.

All the computers always think that the longest chain is the right one and they keep adding blocks to it

If two computers finish a new block at the same time and tell everyone, some computers may get one first and some the other. But they will keep both and choose the longer one when the next block is finished. It’s okay if some computers don’t get the new block right away, they will ask for it later when they realize they missed it.

Incentive

When we make a new block, we put a special coin inside it that belongs to the person who made the block. This is like a prize for making the block and helps people want to make more blocks and help the network.

This is like a prize for making the block and helps people want to make more blocks and help the network

And this is also how new coins are made and put into circulation, because there is no boss giving them out. It’s like gold miners who find new gold. They use resources like electricity and time to find the new coins. And sometimes when people use the coin, they give a little extra money as a thank you, like a tip. This extra money can also help make the prize bigger for making blocks. And when there are enough coins in circulation, the prize can be only the extra money and not make any new coins. And this prize can also help keep people honest. If someone gets too greedy and wants to make more coins or take back their payments, they will have to choose between making more coins or breaking the rules. It’s better for them to follow the rules and make more coins than to lose them all by breaking the rules.

Reclaiming Disk Space

When the special coin has been used a lot and has many marks on it, we don’t need to keep all the marks forever. We can throw some of them away to save space. We put all the marks in a special tree, and only keep the top of the tree.

We put all the marks in a special tree, and only keep the top of the tree

This way, we can still check if the coin is real but don’t have to keep all the marks. Old blocks can be made smaller by cutting off the bottom of the tree. We don’t need to keep all the middle marks. A block without any marks is about 80 letters long. If we make a new block every 10 minutes, it will be 4.2MB big in one year. That’s not very big, even for computers with not much memory. We don’t have to worry about running out of space.

Simplified Payment Verification

You don’t need to have a whole computer in the network to check if the special coin is real. You can just keep a copy of the blocks with the longest line of blocks with the special number. You can ask other computers in the network to make sure you have the longest line. And you can also see the mark of the special coin in the tree to make sure it’s real. But you can’t check the special coin yourself. You just know that the network has accepted it because it’s in the longest line of blocks. This is good enough as long as most computers in the network are honest, but if someone is trying to cheat, they might be able to fool you. One way to protect yourself is to listen to the other computers in the network and if they say something is wrong, you can check it yourself. But if you get paid a lot, it’s probably better to have your own computer in the network for extra safety and to check faster.

Combining and Splitting Value

Sometimes you want to give or get more than one special coin at a time. It would be hard to make a new mark for every single coin. So, when you make a mark, you can put more than one coin in it, or you can get more than one coin from it. Usually, a mark will have one big coin or many little coins put together and then it will have two places to put the coins: one for the person you are giving the coins to, and one for the coins you don’t use and want to keep. And it’s not a problem if the mark is connected to many other marks. You don’t have to keep all the marks, just the one you need.

Privacy

When you use a bank, they keep your information private and only the people involved and the bank know about it. But in this system, everyone can see when someone gives coins to someone else. But they don’t know who it is. It’s like when you see people buying and selling things on a stock exchange, you know what they bought and sold but you don’t know who they are. And to keep it even more private, it’s best to use a new set of keys for every special coin transaction you make. This way, it’s harder for someone to figure out that all the coins belongs to the same person. But sometimes, when you use many coins together in one mark, it can show that they belong to the same person. So it’s important to be careful.

Calculations

Okay, so imagine that there’s a bad person trying to cheat the system by making their own pretend money. But even if they’re able to make their pretend money faster than the real money, they still can’t cheat the system. Because the other people on the network will only accept real money and not the pretend money. It’s like a game where the good people are trying to make more real money than the bad person can make pretend money.

It’s like a game where the good people are trying to make more real money than the bad person can make pretend money

And the more real money the good people have, the harder it is for the bad person to catch up and cheat the system.

Ok, so there’s this thing called electronic coin that is like a chain of digital signatures. Each person who owns the coin signs it and gives it to the next person. But sometimes, people might try to cheat and use the coin twice, which is called double-spending. To make sure this doesn’t happen, we use something called a timestamp server. It makes sure that the coin has been used only once by checking when it was used and making sure no one else has used it before. We also use something called proof-of-work, which is like a game where you have to solve a puzzle to make sure the coin is being used correctly. This way, we can make sure that the coin is being used honestly and no one is trying to cheat. To protect privacy, we make sure that people’s names are kept secret and use a new key for each transaction.

To protect privacy, we make sure that people’s names are kept secret and use a new key for each transaction

Conclusion

We have an idea for a way to make online transactions without needing to trust anyone. We use something called digital signatures which helps to make sure the person buying or selling something is the real owner. But, we also need a way to make sure the same item isn’t being sold multiple times, so we use something called proof-of-work. It’s like a big game where many computers compete to solve a problem and the first one to solve it gets to add a block of information to a chain. This chain keeps track of all the transactions made and it becomes harder to change as more and more blocks are added. The network is simple and doesn’t require anyone to be in charge.