We are going to read the Bitcoin whitepaper and understand it together, line by line. That way, you can understand Bitcoin exactly as Satoshi Nakomoto originally intended it to be, rather than what we want it to be or what it has evolved into today (for better or worse).
Part 6. Bitcoin
In this lesson, we will read the introduction of the Bitcoin paper together and understand it line by line, just like we did with Satoshi Nakamoto’s abstract.
Satoshi begins explaining the Bitcoin system by first discussing the function of transactions, which are the most important aspect of the Bitcoin network.
In Section 3 of the whitepaper, Satoshi describes the concept of a “timestamp server” as a way to track the order of network transactions.
Ready to figure out how Bitcoin resolves the issue of how we can all agree upon a valid single chain of blocks (since any set of nodes in a network can produce a series of timestamped blocks)?
In this lesson, we will learn about what the Bitcoin network is and the rules by which the nodes (i.e., computers) in the network communicate.
As you now know, nodes have to expend CPU power in order to generate a valid hash for the next block. Expending power costs money. Therefore, for nodes to willingly expend this CPU power, it makes sense that they need some sort of reward.
Let’s take a look at what how Satoshi envisioned optimizing the storage of Bitcoin transactions.
The idea behind a simplified payment verification system is to allow nodes to verify payments without needing to store the entire blockchain.
Rather than having a transaction for every cent transferred, Bitcoin structures each transaction to contain one or more different inputs and at most two outputs.
This next section is about the all-important subject of privacy, which ties into the idea of decentralization, and by now you know, was one of reason for Bitcoin’s development in the first place.
In this final section of the white paper, Satoshi uses math to prove how difficult it is for a dishonest attacker to double spend transactions on the Bitcoin network.