Abstract
A purely peer-to-peer electronic cash system enables direct online payments without intermediaries like financial institutions. While digital signatures solve part of the trust issue, eliminating double-spending requires innovation. Bitcoin's solution: a decentralized network timestamps transactions via a hash-based proof-of-work chain, creating immutable records. The longest chain reflects majority CPU power, ensuring security against attacks unless a single entity controls most computational resources.
Introduction
Traditional online commerce relies on trusted third parties (e.g., banks), introducing vulnerabilities like reversible transactions and mediation costs. Bitcoin proposes cryptographic proof instead of trust, enabling irreversible transactions and reducing fraud. Our peer-to-peer timestamp server prevents double-spending by sequencing transactions chronologically, secure as long as honest nodes dominate CPU power.
Key Innovations
- Decentralization: No central authority.
- Immutability: Proof-of-work secures transaction history.
- Efficiency: Minimizes trust-based overheads.
Transactions
An electronic coin is a chain of digital signatures. Each transfer involves signing the previous transaction and the recipient’s public key. The payee verifies ownership but cannot detect double-spending without global transaction awareness. Bitcoin’s public ledger solves this by consensus on transaction order.
👉 Explore how blockchain ensures security
Timestamp Server
A hash-based timestamp server publishes blocks of transactions (e.g., in newspapers or Usenet). Each timestamp includes the prior one, forming an unbreakable chain. Bitcoin replaces centralized servers with a peer-to-peer proof-of-work system.
Proof-of-Work
Modeled after Hashcash, Bitcoin’s proof-of-work requires solving computationally intensive hashes. Key features:
- CPU-Based Voting: Longest chain = most work = valid history.
- Attack Resistance: Rewriting past blocks demands unrealistic CPU power.
- Dynamic Difficulty: Adjusts to maintain ~10-minute block intervals.
Network Protocol
- Broadcast transactions to nodes.
- Nodes compile transactions into blocks.
- Solve proof-of-work for the block.
- Broadcast completed blocks.
- Nodes validate transactions and adopt the longest chain.
Incentives
- Block Rewards: New coins for miners.
- Transaction Fees: Optional fees incentivize network participation.
Honest nodes profit more by maintaining the system than attacking it.
FAQs
How does Bitcoin prevent double-spending?
The decentralized ledger and proof-of-work ensure consensus on transaction order, making double-spending computationally infeasible.
What motivates miners?
Miners earn block rewards and transaction fees, aligning economic incentives with network security.
Can Bitcoin scale for mass adoption?
Innovations like Merkle trees and simplified payment verification optimize storage and efficiency.
👉 Learn about Bitcoin’s economic model
Privacy
While transactions are public, pseudonymous keys obscure identities. Multi-input transactions may reveal linkages, but new key pairs per transaction enhance privacy.
Security Analysis
An attacker catching up from z blocks behind has exponentially diminishing probability:
#include <math.h>
double AttackerSuccessProbability(double q, int z) {
double p = 1.0 - q;
double lambda = z * (q / p);
double sum = 1.0;
for (int k = 0; k <= z; k++) {
double poisson = exp(-lambda);
for (int i = 1; i <= k; i++) poisson *= lambda / i;
sum -= poisson * (1 - pow(q / p, z - k));
}
return sum;
}Results: For q=0.3 (attacker’s share), P<0.001 at z=24 blocks.
Conclusion
Bitcoin eliminates trust in intermediaries via cryptographic proof and decentralized consensus. Its robustness lies in minimal structure, incentivized honesty, and resistance to tampering—ushering in a new era of digital cash.