HAS BITCOIN STRAYED FROM ITS PATH? A REVIEW OF BITCOIN WHITEPAPER.
It has been sixteen years since these rules were written, and it is easy to go off track in an innovating field.
There’s no doubt Bitcoin is the most popular cryptocurrency out there. It has a current market cap of 984 billion dollars and a circulating supply of 19.63 million Bitcoins. Bitcoin is the OG of all cryptocurrencies.
In 2008, Satoshi Nakamoto pieced together the rules of engagement for Bitcoin, and that rule is known as a whitepaper.
The selling point of Bitcoin is decentralization, which is transactions without a middleman because trust is built into the system using cryptography and peer-to-peer networks.
It has been sixteen years since these rules were written, and it is easy to go off track in an innovating field.
Has Bitcoin deviated from Satoshi Nakamoto’s rules of engagement?
We do this by using the abstract because it summarizes everything in the Bitcoin whitepaper.
“A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.
Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending.
We propose a solution to the double-spending problem using a peer-to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work.
The longest chain not only serves as proof of the sequence of events witnessed but also as proof that it came from the largest pool of CPU power.
As long as a majority of CPU power is controlled by nodes that are not cooperating to attack the network, they’ll generate the longest chain and outpace attackers.
The network itself requires minimal structure. Messages are broadcast on a best-effort basis, and nodes can leave and rejoin the network at will, accepting the longest proof-of-work chain as proof of what happened while they were gone”.
The Bitcoin whitepaper abstract above started by telling us about an electronic cash system that is decentralized and operated by everyday people and not large financial institutions. A system where people transact without going through the hassle of the conventional way of sending money across borders.
The second paragraph talks about how the benefits of a blockchain are lost if a middleman is needed to process a transaction. The benefits being talked about here are security, privacy, and decentralization and these benefits are some of the issues plaguing centralized exchanges.
Bitcoin is a form of digital money from one user to another without a middleman to establish trust. There is no medium between the two parties, they interact directly with one another.
The third paragraph talks about double spending, double spending is when a user attempts to spend the same coin twice. It is when someone orders a product and pays for the product with Bitcoin or any other cryptocurrency, the product gets delivered and the person later attempts to cancel the transaction and get their money back without returning the ordered product. Double spending is robbery on the blockchain
In the next paragraph, Satoshi talks about how to prevent this double spending problem by hashing and proof of work.
Hashing is when a computer takes input, runs it through a cryptographic process, and turns the input into what is known as a hash value and proof of work is what a cryptocurrency miner shows other miners that they have validated a said transaction and adds the transaction to a chain of other blocks on the blockchain.
So How Does This Process Prevent Double Spending?
A block on the blockchain contains the previous block hash, metadata, the transactions initiated, nonce, and the present block hash.
When a transaction is initiated, this transaction is hashed and a resulting block hash is generated with a nonce, a nonce is short for “number used only once” and it is used to keep communication private on the blockchain and to add a new block to the blockchain.
This process prevents double spending because every block on the blockchain is connected and to change one is to change all the blocks on a chain which will require powerful computational power and lots of energy. So the process of taking over a blockchain is too expensive.
The last paragraph says that as long as 51% of nodes are good actors, the blockchain is safe and the longest chain is the correct chain.
CONCLUSION
After reading the Bitcoin whitepaper and digesting its content, I can confirm it is still true to its path sixteen years down the line.
Satoshi Nakamoto didn’t invent blockchain but simply adapted it to create Bitcoin and sixteen years down the line, a whole new ecosystem of electronic payments, assets, and games has opened up, and will continue to grow.
The blockchain ecosystem is one of the fields constantly on its toes, innovation is the watchword.
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