Primary source
The Bitcoin white paper
“Bitcoin: A Peer-to-Peer Electronic Cash System”, Satoshi Nakamoto, announced .
PDF source: bitcoin.org/bitcoin.pdf. The summaries below are ours; read the paper itself for the exact wording.
§Abstract
Proposes electronic cash that two parties can send directly without a financial institution, using a peer-to-peer network and proof-of-work to prevent double-spending.
1.Introduction
Online payments depend on trusted third parties, which makes reversals possible, raises costs and forces merchants to collect data. A system based on cryptographic proof instead of trust would remove that need.
2.Transactions
A coin is a chain of digital signatures: each owner signs a hash of the previous transaction and the next owner's public key. The open problem is proving that an earlier owner did not spend the same coin twice.
3.Timestamp Server
Hashing blocks of items and publishing the hash proves the data existed at that time; each timestamp includes the previous one, forming a chain.
4.Proof-of-Work
Blocks are timestamped by finding a nonce that makes the block's hash start with enough zero bits. Changing an old block means redoing its work and all work after it, so the longest chain represents the majority of computing power.
5.Network
Nodes broadcast transactions, collect them into blocks, search for proof-of-work, broadcast solved blocks, and accept a block only if its transactions are valid, always building on the longest chain.
6.Incentive
The first transaction in each block creates new coins for its creator, distributing supply and rewarding honest work; transaction fees can take over once a set number of coins exist.
7.Reclaiming Disk Space
Spent transactions can be pruned by storing them in a Merkle tree, keeping only the root in the block header.
8.Simplified Payment Verification
Users can verify payments without running a full node by keeping block headers and requesting the Merkle branch that links a transaction to a block.
9.Combining and Splitting Value
Transactions can have multiple inputs and up to two outputs (payment and change), so value does not have to move coin by coin.
10.Privacy
Privacy comes from keeping public keys anonymous and using a new key pair for each transaction, although multi-input transactions reveal common ownership.
11.Calculations
Models an attacker racing the honest chain as a binomial random walk, and shows the probability of catching up falls exponentially as more blocks are added after a transaction.
12.Conclusion
Summarizes a trust-free system where nodes vote with CPU power, accept valid blocks by extending them, and enforce rules through this consensus.
Context: the history of Bitcoin.