Summarising Satoshi’s Bitcoin Whitepaper
In the wake of 2008’s global financial crisis, a pseudonymous figure published what has been lauded as a revolutionary concept which set out to change the way the world views currencies. Bitcoin: A Peer-to-Peer Electronic Cash System was sent to a cryptocurrency mailing list, under the name Satoshi Nakamoto, and that’s about as much as we know about the mysterious creator.
The paper consists of nine pages, outlining how the Bitcoin network would operate. One can assume Nakamoto is an exceptionally gifted coder, and is well-versed in cryptography. The paper spares no technical detail, featuring a number of cryptographic diagrams.
The original Bitcoin white paper first appeared in October 2008 many have debated Nakamoto’s vision, while the details of the white paper have often been overlooked, the paper still remains one of the most important Bitcoin resources out there.
No one had heard of Nakamoto before this, but the paper appeared to be the work of someone who thought in a whole new way and had an intimate knowledge of cryptography, computer science, programming, economics and more. The paper is quite technical and can take some time to understand if you’re new to the relevant topics.
But, even after 10 years, it’s one of the most important resources for understanding Bitcoin.
Here’s a quick summary of it.
The case for digital money
The paper begins with an abstract, explaining Nakamoto’s vision for the project: digital money that anyone can spend without needing to go through a bank or any other centralised organisation. For decades, other people had tried to make digital money, but couldn’t figure out a way to do it without centralised control. Nakamoto figured out how to solve this problem.
He goes on to explain his vision for the blockchain (although he didn’t call it that): a chain of records, time-stamped by members of the network, which are known as ‘nodes’. To do this, a node needs to solve a cryptographic puzzle which requires a lot of computing resources. This is known as ‘proof-of-work’. Records added to the blockchain can’t be tampered with afterwards. Nakamoto specifies that this system will protect the network from attacks unless the majority of the nodes collude to add fake records. Whichever chain of records is the longest, is considered the correct one.
Where’s the trust?
In the introduction, Nakamoto gives some wider context on the problem he sought to solve. To make online transactions, we rely on intermediaries, like PayPal or banks. The downside? It’s not conducive of trust. Payments are always reversible, meaning merchants can’t trust their customers. The accompanying hassle leads to higher transaction costs for everything. Nakamoto wanted to make a form of money as straightforward to use as cash, without needing to exist in a physical form. His proposed solution was a payment system based on cryptography so people could make transactions directly between themselves.
Nakamoto then goes on to explain the different components of Bitcoin.
He describes the key problem with digital cash — someone could spend the same money multiple times. This is known as ‘double-spending’. In the early 90s, cryptographers were trying to solve this problem as it’s also related to digital cash used via the internet. Digital cash or cryptocurrencies are similar to a digital file. For example, if you have a file saved on your laptop, you could easily copy it and send it to a friend who will save it in another location. There’s nothing stopping your friend from copying the file multiple times and sharing the file with anyone they choose.
This principle also applies to Bitcoin, and if it could be copied many times over, then it would become worthless. This is the double-spend problem. Bitcoin solves the double-spend problem by publicly broadcasting each transaction to the network, then adding it to a shared ledger. Each transaction is timestamped, so any further attempts to spend the same money again are rejected by the network.
Where’s the proof?
Nakamoto then defines his proof-of-work system. Each time the network releases a new block, nodes compete to ‘solve’ a cryptographic puzzle. The solution is difficult to find, but easy to verify. Solving it is a random process, so every node has an equal chance of getting it, relative to its computing power.
The difficulty gets adjusted over time, to ensure each block takes about ten minutes — even as computers get faster over time. Seeing as the equipment these nodes require is expensive, their compensation is freshly minted Bitcoin for each block. This system, known as mining, serves both to distribute new Bitcoin and to keep the network secure.
The keys to privacy
A big part of Bitcoin’s initial design was privacy. While it’s not (and was never intended to be) anonymous, Satoshi intended to keep it relatively private by not linking any identifying details to the records. Nakamoto compares this to stock markets, which show the size and scope of trades but not who made them.
Finally, Nakamoto concludes the paper by summarising his previous points and describing Bitcoin as ‘a system for electronic transactions without relying on trust.’ In the references section, he refers to several previous attempts to make digital money. And in just nine pages, Nakamoto described his world-changing idea.