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On October 31, 2008, an individual or group using the pseudonym Satoshi Nakamoto released the Bitcoin whitepaper titled “Bitcoin: A Peer-to-Peer Electronic Cash System” on a cryptography mailing list called the Metzdowd Cryptography Mailing List.

Bitcoin: A Peer-to-Peer Electronic Cash System

 This whitepaper includes 12 sections, but we will focus on the 5 most fundamental aspects that form the foundation of Bitcoin:
  1. Electronic Cash System - How Bitcoin enables peer-to-peer transactions without intermediaries
  2. Transactions - The building blocks of Bitcoin using digital signatures
  3. Timestamp Server & Proof-of-Work - How consensus is achieved and secured
  4. Network Architecture - How the network operates and verifies transactions
  5. Incentives & Mining - The economic model that keeps the network running
1

Electronic Cash System

Current financial markets rely on financial middlemen - when transacting online with strangers, you must rely on third parties like banks.A 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.Bitcoin focuses on building trustless systems built on top of computer science versus traditional trust-based systems.
2

Transactions

Transactions are the fundamental building blocks of the Bitcoin network, utilizing digital signatures for security.Each transaction relies on two key components:
  • Public keys: Function like an email address for receiving bitcoin and viewing balances
  • Private keys: Act as a password to control funds and sign transactions
Digital signatures ensure:
  • Only the rightful owner can spend their bitcoin
  • Transactions cannot be forged or tampered with
  • All transactions are publicly verifiable
3

Timestamp Server & Proof-of-Work

The Bitcoin network uses Proof of Work and timestamp servers to validate transactions and achieve consensus:Timestamp Server:
  • Creates an immutable chronological order of transactions
  • Each block contains a timestamp and link to previous block
  • Forms an unbroken chain of transaction history
Proof of Work:
  • Requires significant computational effort to create blocks
  • One CPU equals one vote in the network
  • The longest chain represents the network consensus
  • Makes the system computationally expensive to attack
4

Network Architecture

The Bitcoin network operates on a distributed peer-to-peer model:Key Components:
  • Nodes maintain and verify the complete transaction history
  • New transactions are broadcast to all nodes
  • Each node collects transactions into blocks
  • Nodes accept only valid blocks and transactions
  • Nodes express acceptance by working on the next block
Network Rules:
  • All nodes operate under the same protocol
  • Invalid transactions are rejected automatically
  • The longest valid chain is always accepted as truth
5

Incentives & Mining

The network is secured through economic incentives:Mining Process:
  • Miners validate transactions and create new blocks
  • Complex mathematical problems must be solved
  • Successful miners receive newly created bitcoins
  • Block rewards incentivize honest participation
Economic Model:
  • Mining requires significant investment in hardware
  • Energy costs create natural economic barriers
  • Miners are incentivized to protect network value
  • Attack costs exceed potential profit
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