Bitcoin white paper explained
For example a single input from a large transaction, or many smaller inputs. Traditional banking limits access to information to just those involved in the transaction and the trusted third party. This is not workable in a model where the transactions are broadcast publicly, but the need for privacy is still important.
Privacy is maintained by keeping public keys anonymous. A transfer can happen without knowing who is involved in the transaction. Calculations is the longest section in the whitepaper, just over 2 of the 9 pages. In this section the paper considers a scenario where bad actors in the system try to generate an alternative chain faster than the honest chain.
In this scenario there is a race between the honest chain and an attacker bad chain, and the section steps through the mathematical probability that the attacker chain can catch up with the honest chain. Email will not be published required. Who is Satoshi Nakamoto? There is no way of making peer-to-peer payments online that bypass financial institutions. Some solutions exist that utilise digital signatures, but these require a trusted third party to ensure that the digital value is not spent more than once double spending The Solution: Reliance on financial institutions The need for trusted parties to process payments Non-reversible transactions which in turn increase transaction costs and further accentuate the need for trusted and centralised third parties An acceptance that some fraud is inevitable The need for a electronic payment system that: Uses cryptographic proof rather than trust Enables parties to transaction directly with one another bypassing any central or trusted third party Protects individuals from fraud 2.
Bitcoin is a chain of digital signatures Every owner of an electronic coin passes it to the next owner by digitally signing: Therefore it is impractical to unlock a single block as the whole chain has to be changed to do this.
Hence, this creates transactions that cannot be reversed. Nodes always consider the longest chain to be correct. If two nodes send two versions of the block at the same time, these blocks will be processed based on their time stamp. The longest chain will win. If a node is switched off and subsequently does not receive a block, the rest of the nodes will continue without it and the node that missed out will be updated when it connects to the network at a later date.
Conventionally, the first transaction in a block creates a new coin which is owned by the person node who created that particular block. This incentivises people to use their computers nodes and connect to the Bitcoin network to help process Bitcoin transactions. This is where the term Bitcoin mining originates. Transaction fees also act as incentives, which are additional charges added to each transaction.
Once the maximum amount of coins 21 Million have entered the Bitcoin system, the incentive to keep mining Bitcoins solely comes in the form of transaction fees, which are inflation free. It is hoped that these incentives will keep the nodes honest literally and stop them resorting to fraud to make a profit. If fraudulent users have more nodes than honest users, they can undo the block chain, steal payments and generate new coins.
Old transactions can be discarded after a set amount of time to save disk space, the root a trace of the discarded transaction will remain so the Blockchain remains intact. Payments can be verified without running the full network on a node. This is done by querying the network of nodes and matching a transaction to its time-stamp. The transaction cannot be checked by an individual node, a person must connect to another node which connects them to the Blockchain.
This method of verification when making a payment is reliable as long as honest nodes are in control, however this verification method becomes venerable if fraudulent nodes take over the network. To overcome this, an alert should be sent from nodes that detect an invalid block, informing other nodes to download a copy of the full Blockchain to confirm invalid blocks.
Businesses should run their own nodes for increased security. Processing coins individually is possible, however it is inefficient to make a separate transaction for ever cent in a transfer. This allows a large coin to be split into multiple parts before being passed on, or smaller coins to be combined and make a larger amount. A maximum of 2 outputs from each transaction can be made, one going to the recipient and another returning change if any to the sender.
Although transactions are publicly declared, the public keys that identify individuals are anonymous, and hence the identities of the sender and receiver cannot be determined by the public. It is publicly declared that an amount of money is moving from point A to B, however no identifiable information is openly distributed. These calculations require a somewhat advanced understanding of mathematics which can take a long time to explain in a simplified manner.
I will not go into this detail here, however, if enough people request this, I will make a new post explaining this section in detail. There is a higher probability that an honest node will find a block before a fraudulent node.
It is therefore unlikely that the fraudulent node will catch up with the honest node when making a fraudulent Blockchain. The odds are not in the favour of the fraudulent node unless they simply get lucky.
This is important when increasing the size of the Blockchain as the nodes identify the longest Blockchain as being the correct chain. A peer-to-peer network using proof-of-work is used to create a public log which is impractical for attackers to change, provided honest nodes are in control of the system.
Nodes work with little coordination, they do not need to be identified since messages are not ever sent to a sole location.
Nodes can leave and rejoin the network at any time, provided they update their Blockchain upon re-entering the network. Hi britcoin , I'm glad you liked this article! It was fun to write and I'm glad its helped people understand Bitcoin a lot more.
Thanks for sharing, its much appreciated! A very well explained breakdown. Thank you quicksilver , the plan is to get more people into crypto so i'm glad this will help: I had to sign up for steemit account to be able to thank you for this great post. Will look forward to see similar posts by you. Bitcoin White Paper explained An example of this: In brief, this section mathematically states: A system for electronic transactions without relying on 3rd party trust has been proposed.
Digital signatures provide strong controls over ownership and double-spending is prevented. Rules and incentives can be enforced using a voting system. Thank you for reading this post! Please upvote, comment and follow dr-physics for more content!