Bitcoin White Paper: A Peer-to-Peer Electronic Cash System

PANews Editor’s Note: On October 31, 2008, Satoshi Nakamoto posted the Bitcoin White Paper. Today marks the 17th anniversary. Below is Li Xiaolai’s translation of the White Paper for everyone to revisit this classic.

Summary: A purely 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. While digital signatures provide part of the solution, if a trusted third party is still required to prevent double-spending, the main benefits of electronic payment are lost. We propose a solution using a peer-to-peer network to solve the double-spending problem. The peer-to-peer network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. The longest chain serves both as proof of the sequence of witnessed events and as proof that it came from the largest pool of hash power. As long as the majority of hash power is controlled by honest nodes—which are not cooperating with those attacking the network—honest nodes will generate the longest chain and outpace attackers. The network itself requires minimal structure. Messages are broadcast on a best-effort basis, and nodes can leave and rejoin the network at will; but they always accept the longest proof-of-work chain as proof of what happened while they were gone.

1. Introduction (Introduction)

Internet commerce almost exclusively relies on financial institutions serving as trusted third parties to process electronic payments. While the system works well enough for most transactions, it still suffers from the inherent weaknesses of the trust-based model. Completely non-reversible transactions are not really possible, since financial institutions cannot avoid mediating disputes. Mediation costs increase transaction costs, limiting the minimum practical transaction size and cutting off the possibility for small, casual transactions. There is also a broader cost: the inability to provide non-reversible payment for non-reversible services. The possibility of reversal requires trust to be everywhere. Merchants must be wary of their customers, hassling them for more information than they would otherwise need. A certain percentage of fraud is accepted as unavoidable. These costs and payment uncertainties can be avoided in person by using physical currency, but no mechanism exists to make payments over a communications channel without a trusted party.

What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party. Transactions that are computationally impractical to reverse would protect sellers from fraud, and routine escrow mechanisms could easily b