Bitcoin White Paper

Made Simple
A guide to understanding the Bitcoin white paper for
people without an advanced degree in computer geekery
 CONTENTS 2

WTF 3 Incentive 23

Background 7 Reclaiming Disk Space 23

Introduction 10 Simplified Payment Verification 23

Transactions 13 Combining and Splitting Value 23

Timestamp Server 13 Privacy 23

Proof of Work 13 Calculations 23

Network 13 Conclusion 28

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WTF

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 WTF 4

Most of us regular folk have been scratching our average work required is exponential in
heads in utter bewilderment ever since the release of the number of zero bits required and can
the Bitcoin White Paper in 2008. I mean common. be verified by executing a single hash. For
WTF is going on, right? our timestamp network, we implement the
proof-of-work by incrementing a nonce in

Take a look at this… the block until a value is found that gives
the block’s hash the required zero bits. Once
the CPU effort has been expended to make it

”
To implement a distributed timestamp
server on a peer-to-peer basis, we will need satisfy the proof-of-work, the block cannot

to use a proof-of-work system similar to be changed without redoing the work.”

Adam Back’s Hashcash [6], rather than

Yep. This is not a drill.
newspaper or Usenet posts. The proof-of-
work involves scanning for a value that That’s a real excerpt from the Bitcoin White Paper.

when hashed, such as with SHA-256, the In fact, it addresses one of the most important

hash begins with a number of zero bits. The elements in Bitcoin.

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 WTF 5

But let’s be honest. extension, you will also gain a better understanding
of blockchain, the underlying technology that
If you’re like most people without an advanced
enables Bitcoin to operate. If you have a general
degree in computer science or engineering, the
idea about Bitcoin but just can’t seem to make
excerpt above is just one of many examples that
sense of it all, this guide is for you.
makes you feel overwhelmed, frustrated and
bamboozled. The guide is not for people with advanced
knowledge of Bitcoin nor will it make you an
Don’t worry though. You’re not alone.
expert. With this in mind, we will be leaving out
The Intrepid team has heard your distress calls, and
some of the more hardcore technical elements
we’re here to help.
that are irrelevant to you gaining a fundamental
understanding. We will also be expanding on
Who should read this guide? some concepts where needed.

This guide will break down the Bitcoin white

paper so that people without an advanced degree
in computer geekery can understand what Bitcoin
is, how it works and the problems it solves. By

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 WTF 6

Why should you care?

That’s easy. The Bitcoin white paper is one
of the most important documents to get your
head around if you want to understand what
cryptocurrencies are and how they work.

The Bitcoin white paper is not only considered the

most seminal piece of work in the cryptocurrency
movement, it also gave birth to a transformative
technology called blockchain.

If you can digest the central concepts in the

Bitcoin white paper, the broader decentralized
revolution, which involves hundreds of different
cryptocurrencies and other types of blockchain-
based applications will begin to make a lot more
sense.

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Background

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 BACKGROUND 8

It’s late 2008, and the global financial crisis is promising. In January 2009, the first transaction
causing shock waves around the world. Anger at the takes place between Satoshi and Hal Finney,
worldwide banking industry, governments and other a developer and prominent member of the
centralized authorities has reached fever pitch. Cypherpunk movement.

Enter a mysterious figure named Satoshi Nakamoto, And the rest is history. Today, almost everyone has
whose real identity continues to remain shrouded in heard about Bitcoin and its value has skyrocketed.
mystery to this day. Even more profoundly, the Bitcoin currency along

Satoshi authors and releases a white paper titled with its core blockchain operating technology has

Bitcoin: A Peer-to-Peer Electronic Cash System. managed to propel a decentralized revolution around

The paper shared the workings for a new digital the world. For a complete timeline of Bitcoin from

currency system that didn’t rely on banks to 2007 onwards, visit http://historyofbitcoin.org/ .

facilitate transactions or governments to create and

disseminate the currency.

Shortly after its release it is studied by members of

the Cypherpunk group and found to be extremely

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 BACKGROUND 9

A quick note before we begin:

The Bitcoin White paper can be split into four main

sections:

• Abstract - An overview of the entire paper (Not

important, we will skip this)

• Section 1 - Introduction - Problems with digital

transactions & introduction to the Bitcoin
solution

• Sections 2 - 11 How the Bitcoin system works

• Section 3 - Conclusion - Summary of the key

features proposed in the paper

This guide will examine each section (except the

abstract) and follow the same order as the Bitcoin
paper.

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Introduction

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 INTRODUCTION 11

In the introductory section, Satoshi argues that governments to ensure trust and certainty.
digital transactions are too reliant on financial Middlemen perform a range of critical tasks that help
institutions and other intermediaries due to build trust into the transactional process. Things
something called the double-spending problem. like payment authentication & record keeping.
This reliance means that digital transactions are
The need for intermediaries is especially acute when
expensive and slow.
making a digital transaction.
To overcome the double spending problem, Satoshi
That’s because the internet today is an internet
proposes a new system called Bitcoin which enables
of information, where information is copied and
people to conduct direct electronic bitcoin payments
distributed around the world.
without needing to rely on costly intermediaries.
Think video, email, any digital file.

For example. When you read an email, you are

What you need to know
actually looking at a copy of the original. The person
Historically, when it comes to transacting money
who sent you the email has the original email while
or anything of value, people and businesses have
you have a copy.
relied heavily on intermediaries like banks and
This may seem obvious, but when you spend money

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 INTRODUCTION 12

online, you are not sending physical currency notes. This problem doesn’t exist in the physical world.
Only data, which represents the transaction of After a person spends physical currency like US
currency (USD, YEN, POUNDS, etc.) is getting dollars, they no longer have that cash (the actual
sent. So, money in the digital world is just another notes) in their possession. They can’t, therefore,
piece of data like an email or any digital file. spend the same money over and over.

Until now, in this Internet of information, it The digital world is a different beast. Intermediaries
has been impossible to store, move and transact like banks are needed to facilitate transactions and
money or anything of value without relying on an solve the double spending problem thus creating
intermediary. trust between parties. They do this by ensuring the

That’s because there’s a big problem. records of who owns what is up to date at any given
time.
Things don’t work so well if you can send someone
$100 online, yet still, have that original $100 under For example, if you spend $100, banks ensure that

your name. That would mean you could just keep your account balance decreases by $100 and the

spending that $100 as many times as you wanted. account of the person or organization you transacted

The money would become meaningless. with increases by $100. No double spending can
occur.

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 INTRODUCTION 13

The reliance on intermediaries to facilitate online To overcome the double spending problem which
transactions and prevent double spending has two results in a reliance on intermediaries and a whole
main disadvantages: new set of issues (inability to make non-reversible

• Non-reversible transactions are not possible as transactions, increased costs, etc.), Satoshi proposes

intermediaries like banks have to mediate any a new electronic payment system that relies on

disputes that arise. With the possibility to reverse sophisticated computer encryption (cryptography)

a transaction through mediation, the need for instead of the trust generated by expensive and slow

trust between parties increases as does the need intermediaries.

for trusted intermediaries. As Satoshi puts it,

• The cost of financial institutions to resolve

disputes and deal with fraud (mediate) increases
transaction costs, thereby, making small or micro- ” No mechanism exists to make payments
over a communications channel without a
transactions impractical. Think about it. Why trusted party. What is needed is an electronic
would anyone digitally transfer or spend $1 if the payment system based on cryptographic
transaction costs worked out to be even greater proof instead of trust, allowing any two
than the amount being transferred or spent? willing parties to transact directly with

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 INTRODUCTION 14

each other without the need for a trusted

third party.

Why is this section important?

This section discusses the main problems with digital
transactions today. It also briefly introduces Satoshi’s
solution to solve this problem.

You probably carry out online transactions all the

time, but you may not have realized the central role
intermediaries play in your transactions. After reading
the introductory section, you should have a good idea
about the nature of the double spending problem and
the flow on issues it creates. You should also understand
that it is the double spending problem which Satoshi
seeks to solve with the Bitcoin peer to peer system.

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Transactions

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 TRANSACTIONS 16

This section introduces the technology that enables What is a blockchain?

Bitcoin to operate - You may have heard about it.
A blockchain is a type of distributed ledger or
It’s called Blockchain!
decentralized database that keeps continuously
updated records of digital transactions (who owns
What you need to know what). The Bitcoin blockchain is designed as a write
once read only database where records can only ever
From the start, it’s important to clarify that a though
be added, not edited or deleted.
Satoshi refers to ‘coins’ throughout the paper, there
are no physical bitcoins. Rather than having a central administrator like a

They don’t exist, anywhere. traditional database, (think banks, governments),

a blockchain has a network of replicated databases,
There are only records of bitcoin transactions (data)
synchronized via the internet and visible to anyone
which get stored in a big digital ledger called a
within the network.
blockchain. Yes! A blockchain!
The relationship between Bitcoin and Blockchain
The ledger history of transactions (i.e., the Bitcoin
is best summed up by Sally Davies, FT Technology
blockchain) is the actual currency.
Reporter:

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 TRANSACTIONS 17

”
[Blockchain] is to Bitcoin, what the internet In the mint based model, the mint was
is to email. A big electronic system, on top of aware of all transactions and decided which
which you can build applications. Currency arrived first. To accomplish this without a
is just one. trusted party, transactions must be publicly
announced.
How does this decentralized network
made up of strangers spread across What about privacy and security?
the world (the Bitcoin blockchain) When people hear that all transactions are publically
overcome the double spending prob- announced, a typical response is - that’s an abuse of
lem? my privacy and security! I don’t want my transaction
It does this by publically announcing all transactions history and identity presented to the world.
to the network. As Satoshi states: Don’t worry. While it’s true that all transactions are
publicly announced, transactions use cryptography

” The only way to confirm the absence of a

transaction is to be aware of all transactions.
instead of relying on centralized intermediaries to
provide security and privacy.

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 TRANSACTIONS 18

WTF is cryptography? allows a transfer of ownership of a specified amount

of bitcoin to an assigned address. Transactions do
Cryptography is just a form of encryption that involves
not get signed in a traditional sense with a pen
the creation of codes to allow information to be kept
and paper. Instead, transactions are authenticated
secret. It is the cryptographic element of Bitcoin which
through the generation of some code that is unique
turns a transaction message into a format that is
unreadable to an unauthorized user. to each party and transaction.

So even though Bitcoin transactions can be viewed by Bitcoin digital signatures are like mathematical
anyone on the network, they are pseudonymous. When mechanisms that authenticate transactions. They
you send and receive bitcoins, it’s like writing under a use something called public key cryptography which
screen name, pen name, alias or whatever you want to is a system that uses pairs of connected keys.
call it. This alias which comes in the form of a jumbled A public key is publicly visible on the network, and a
bunch of characters is not linked to your identity. private key is known only to the owner of a Bitcoin. It
is these paired keys or digital signatures that ensure
transactions are secure, authentic and private.
That’s interesting, tell me more
Here’s a look at the transaction process in a nutshell:
A Bitcoin transaction is a signed piece of data that

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A sender generates a private and a public key. They Why is this section important?
then digitally sign a transaction message which
Most of you will have heard about blockchain
ensures the transaction is authentic and non-
technology but wondered where it fits into the
repudiable and send their public key along with
whole Bitcoin thing. Now you can understand
the signature and message to the Bitcoin network.
the relationship between Bitcoin and Blockchain
But what happens if members of the network and see why they are so often confused or used as
use different transaction timelines? Members are interchangeable terms.
spread around the world so won’t people be able to
double spend their bitcoins? How do participants
in the Bitcoin network agree on a single history
of the order in which transactions were received?

To avoid these issues, members of the network

agree to a single transaction timeline and process
transactions according to their timestamp. More
about this in the next section.

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Timestamp Server

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 TIMESTAMP SERVER 21

In section three, Satoshi goes into more detail about a single timeline and each transaction getting
how the decentralized Bitcoin network overcomes timestamped, how does a new recipient of bitcoins
the double spending problem. He proposes a know and trust that the previous owner did not sign
specific software that is used to digitally timestamp any earlier transactions? In the Bitcoin network
data called a timestamp server. there is no central intermediary to confirm if a
transaction or previous transactions have been
double spent.
What you need to know
Even though the majority of the network agree to run
on a single timeline, for a decentralized system like The solution
Bitcoin to operate without any central intermediary, The timestamp server is a piece of software that
there needs to be a way for the network to agree timestamps transactions when they occur. It takes
about which order transactions are generated in. a small section of the transaction data and digitally
That means each transaction needs to get stamped timestamps it to create a hash.
with a precise time on it.

Think about it. Without the network running on

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 TIMESTAMP SERVER 22

What’s a hash? What happens after the hash is

A cryptographic hash is an algorithm that takes an created?
input and turns it into an output of a fixed size. It • The timestamped hash is made publicly available
looks like a line of jumbled up numbers and letters. for everyone in the network to view.
There are many types of cryptographic hashes. • The Bitcoin network processes each transaction
Bitcoin, for example, uses a hashing algorithm called in order of their respective timestamped hash.
SHA-256.
• The hash serves as a complex computer problem
Here’s an example: that needs to be solved by miners before a
INPUT: Hello transaction can be added to the blockchain for

OUTPUT: 2cf24dba5fb0a30e26e83b2ac5b9e29e1b eternity.

161e5c1fa7425e73043362938b9824 • Each time stamp includes the previous transaction

timestamp thus forming a chain of transactions aka a
blockchain.

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 TIMESTAMP SERVER 23

An important note
If the same coin is sent to multiple recipients only
the first recorded transaction will be accepted. The
transactions with later timestamps are rejected.
Because the entire Bitcoin network agrees to the same
transaction timeline, there are no discrepancies.

Why is this section important?

If you ever wondered how members of the Bitcoin
network agree on a single history of the order in which
transactions were received and overcome the double
spending problem, this section has the answers.

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Proof of Work

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 PROOF 0F WORK 25

Section four is SUPER important. It focuses on how Bitcoin network, they do not come in the order in
the Bitcoin network deters denial of service attacks which they get generated. Transactions get passed
and other service abuses. from node to node in the network, but there is
no guarantee that the order in which they are
received at each node is the same order in which the
What you need to know
transactions were generated.
For a decentralized system like Bitcoin to operate
To agree to the order of transactions, decentralized
without any central intermediary, there needs
networks like Bitcoin use Blockchain technology
to be a way for the network to agree about which
which places transactions in timestamped blocks
transaction records are valid and deter any abuse of
(groups).
service attacks like spamming.
All transactions in a specific block are deemed to
Although we have already learned how the Bitcoin
have occurred at the same time, and each block gets
network agrees to the order of transactions, it will
linked to a chain of other timestamped blocks in
help your understanding of Proof of Work if quickly
chronological order.
go over it again.

When transactions are publically broadcast on the

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 PROOF 0F WORK 26

But a big problem still remains. power, preventing the validation of real transactions
from occurring.
If multiple blocks can be created at the same time,
and blocks travel through the network arriving at
different points in the network at different times, Introducing Proof of Work (PoW)
how does the network agree which additions to the
Proof of Work aka mining is performed to facilitate
ledger are valid?
transactions on the blockchain and discourage bad
Any member of the network can still collect actors from spamming the network by sending out
unconfirmed transactions, create a block and send fraudulent or illegitimate transactions. It involves
it out to the network in an attempt to add it to the miners (members in the network with high levels of
validated chain of blocks (the Bitcoin blockchain). computing power) to prove that a specified amount
work has been completed.

If an ill-intentioned member of the network sends out These miners must solve complex mathematical
a bunch of unconfirmed or illegitimate transactions puzzles that are difficult to solve yet easy to verify.
to add to the blockchain, it could clog up the entire Solving these problems demands lots of expensive
system by monopolizing the network’s computing computational effort (lots of hardware equipment

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 PROOF 0F WORK 27

and electricity usage), so fraudulent transactions miners put new blocks of transactions through an
become infeasible. They are just not worth it! algorithm that turns a large amount of transaction

Miners that successfully solve the PoW puzzle and data into a fixed length aka a hash. (Remember we

update the blockchain get a reward of bitcoins. (This looked at hashing in the previous section.)

is how new bitcoins get made) The network picks The Bitcoin network demands that a block’s hash
the longest valid chain with the highest amount of has to look a certain way. If the hash doesn’t fit the
work as the correct chain. Consensus is reached! required format, then the puzzle remains unsolved.

Think about PoW as a system that adds a penalty It usually takes many attempts to find the solution,

or cost to members who try to present an alternate and as stated before, it takes a lot of computing

history of transactions to the network. power. Every time a miner successfully creates a
hash that fits the required format, they get a reward
of bitcoins, and the blockchain is updated.
What does Proof of Work actually
involve?
A Proof of Work problem is based on something
called a cryptographic hash function. In Bitcoin,

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 PROOF 0F WORK 28

Why is this section important?

Proof of Work aka mining is used to facilitate
transactions on the Bitcoin blockchain and prevent
attacks from dishonest members. Although Proof
of Work is not a new idea, the way Satoshi used
it in combination with digital signatures, and
P2P networks is groundbreaking. It is Satoshi’s
combination of these existing concepts that provide
the main innovation in the Bitcoin white paper.

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 29

Network

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 NETWORK 30

Section five of the Bitcoin white paper addresses the • The network nodes only accept the new block
steps involved in running the network. if all transactions in it are valid and not already
spent.

What you need to know • Nodes then move on and start creating the next
block in the chain.
The steps involved are as follows :
• Repeat above steps.
• New transactions are broadcast to all computers
(nodes) in the network.

• Each node collects new transactions into a block If two nodes broadcast different versions of the next

of transactions. block simultaneously, the network nodes consider

the longest chain to be correct and will keep working
• Each node works on finding a difficult proof-of-
on extending it. Any nodes that are switched off and
work for its block.
fail to receive a new block will be updated when they
• When a node solves the mathematical problem connect back to the network.
(proof-of-work), it broadcasts the block to all
nodes.

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 NETWORK 31

Why is this section important?

Bitcoin is reliant on a network of nodes and a
consensus mechanism (PoW) to keep members of
the network (nodes) honest and incentivized. By
understanding the steps involved in running the
network, you can get a better overall picture of how
Bitcoin works. As you can see, the process of running
the network is relatively simple.

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Incentive

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 INCENTIVE 33

”
In section six of the Bitcoin white paper, Satoshi This adds an incentive for nodes to support
looks at how to incentivize members/nodes to the network, and provides a way to initially
support the network and carry out the expensive distribute coins into circulation, since there
and time-consuming task of PoW, aka mining. is no central authority to issue them.”

Unlike traditional currencies like the US dollar,

What you need to know
Bitcoin doesn’t have a central bank to ‘print’ or
Bitcoin mining is an expensive and time-consuming
produce more currency. To introduce more bitcoins
task. To incentivize members to support the network
into the network and motivate people to keep the
a reward is given in the form of bitcoins.
system honest, miners are rewarded with new
The first transaction in a block creates a new coin bitcoins.
which is owned by the person (node/miner) who
solved the puzzle and subsequently created that
particular block. Transaction fees which are additional charges added
to transactions are also used to incentivize miners
to keep the network operating smoothly. Once a

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 INCENTIVE 34

predetermined number of coins (21 million to be

precise) have entered circulation, the incentive will
then transition entirely to transaction fees.

Why is this section important?

Ever heard the term crypto-economics? The term
refers to the study of economic interactions in
adversarial environments. It’s all about incentives
and disincentives.

In adversarial P2P environments like Bitcoin,

where there are no central intermediaries to keep
bad things from happening, there needs to be a set
of incentives and penalties to keep things running
smoothly. Without a way to incentivize members,
the Bitcoin network would not be able to operate.

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Reclaiming Disk Space

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 RECLAIMING DISK SPACE 36

This section is all about saving space! keep the entire history of the Bitcoin blockchain
intact, Satoshi recommends keeping a trace or root
of a transaction so that the blockchain can remain
What you need to know
unbroken but at the same time have more space.
Think about the history of transactions that have
It’s kind of like data compression where all the
ever occurred on the Bitcoin blockchain since its
number of bits needed to represent data is reduced
inception in 2009. That’s a lot of transaction data!
to save storage space and speed things up.
Think about what happens when your computer
To facilitate this without breaking a block’s hash,
gets low on disk space. Standard processes begin to
transactions are hashed in a Merkle Tree. A Merkle
slow down, and your computer runs painfully slow,
tree is just a hash based data structure that allows the
right?
efficient and secure verification of large amounts of
Well, to save disk space and keep Bitcoin usable, data.
Satoshi proposes old transactions get discarded
after a set amount of time.

But, Satoshi isn’t proposing to delete past

transactions altogether. To maximize disk space and

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 RECLAIMING DISK SPACE 37

Why is this section important?

Bitcoin may appear all-powerful, but it has
constraints just like any other network or system.
Memory allocation is a critical factor in determining
the Bitcoin network’s storage capacity and speed
of transactions.

While it’s not critical for you to understand

this section in depth, the main takeaway is that
storage capacity is an issue in the Bitcoin network.
To save space, a particular method of structuring
data is used called Merkle Trees.

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Simplified Payment Verification

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 SIMPLIFIED PAYMENT VERIFICATION 39

Section eight is all about payment verification. What’s the difference?

Whereas Full Payment Verification wallets, also
What you need to know called thick or heavyweight wallets, require a
complete copy of the blockchain and can verify
You don’t have to be a miner that helps verify
transactions, Simplified Payment Verification
transactions to make Bitcoin transactions.
wallets, also called thin or lightweight wallets, do
It’s also possible to just send and receive bitcoins
not have a full copy of the blockchain and cannot
with a simple Bitcoin wallet.
check whether transactions are valid.
Most members of the Bitcoin network around the
They can however securely determine whether or
world do not operate full payment verification nodes
not a user has received transactions.
and don’t have massive supercomputing power at
their fingertips. Most people just own a simple light
wallet aka a simplified payment verification node. Why is this section important?
Nothing is stopping you from going online right
now, buying some bitcoins and beginning to send
and receive bitcoins to and from your wallet. Well

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 SIMPLIFIED PAYMENT VERIFICATION 40

nothing except maybe regulations, but that is a

whole different discussion.

Bottom line. You don’t need to be a computer geek

with thousands of dollars of equipment to get
involved in the Bitcoin revolution. It’s pretty easy!

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Combining
and Splitting Value

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 COMBINING AND SPLITTING VALUE 42

Don’t be scared of the title. This is one of the easier Just like traditional currencies such as the US dollar,
sections to understand. bitcoins can be split into ‘cents.’ Whatsmore, they
can also be combined to form larger transactions.

What you need to know

Have you ever wondered how varying amounts of An example
bitcoins get handled when they are transacted? You walk into a store and want to purchase something

As you may know, bitcoins can be split up, so for $50. It would be inefficient for you to hand over

it’s not only possible to transact in full Bitcoin $1 coins/notes to the shop attendant. It would also

denominations. be inefficient for the store owner to individually

process each of these $1 transactions independently
Think about it like dollars and cents.
50 times!
When you go to the local store, it’s possible to pay
It’s much easier to just hand over a $50 note in one
for an item in a variety of ways right? 10 or 20 cent
quick and easy transaction.
coins for example. You don’t just have one dollar
coins or notes in your wallet. In bitcoin, a coin can be both split into multiple
parts before being passed on and combined to make

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 COMBINING AND SPLITTING VALUE 43

a larger amount, thus ensuring practicality and

efficiency in the network.

Why this section is important?

The way bitcoins get processed impacts the efficiency
of the bitcoin network. By enabling the value of coins
to be split and combined, the network can remain
relatively efficient.

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Privacy

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 PRIVACY 45

Yes, you guessed it! But what about the privacy of people
This section is all about privacy. making transactions?
This is where public key cryptography comes to the
rescue. Transaction information is encrypted so
What you need to know
members of the network only see a random bunch
In the traditional banking model, privacy is achieved
of letters and numbers.
by limiting access to transaction information to the
No party that intercepts a transaction message will
parties involved and the trusted third party.
be able to read it. Only the holder of the private key
In Bitcoin, however, there is no central intermediary
can make sense of the message contents.
like a bank. Instead, new transactions are broadcast
to the network so all members can check that no
fraudulent activities like double spending are Why is this section important?
taking place. As the world digitizes at a rapid speed, data privacy
has become a significant concern. Data breaches
have impacted companies & government agencies
around the world. From Yahoo, Sony and Target

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 PRIVACY 46

to the NSA and US Department of Defense,

sophisticated hackers are stealing highly sensitive
data on an unprecedented scale.

If a breach of the Bitcoin network occurs, your

address and transaction information cannot be
easily linked to your identity.

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 47

Calculations

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 CALCULATIONS 48

Caution: Geek porn ahead! Section ten is not for probability he could catch up from that point: ∑ k=0
the average punter. ∞ k e - k! · { q/ p z-k if k≤z 1 if kz} Rearranging to
avoid summing the infinite tail of the distribution...
1-∑ k=0 z k e - k! 1-q/ p z-k Converting to C code...
What you need to know
#include double AttackerSuccessProbability(double
This section is getting well into the weeds. q, int z) { double p = 1.0 - q; double lambda = z *
Understanding it is not only unnecessary, but it (q / p); double sum = 1.0; int i, k; for (k = 0; k <=
could also be detrimental to your mental health. z; k++) { double poisson = exp(-lambda); for (i = 1;
Jokes aside, it will only serve to confuse you so we i <= k; i++) poisson *= lambda / i; sum -= poisson
will skip right over it and head to the conclusion. * (1 - pow(q / p, z - k)); } return sum; } 7 Running
some results, we can see the probability drop off

Take a look at this excerpt and you will see what exponentially with z. q=0.1 z=0 P=1.0000000 z=1

we’re talking about. P=0.2045873 z=2 P=0.0509779 z=3 P=0.0131722

z=4 P=0.0034552 z=5 P=0.0009137 z=6
=z q p To get the probability the attacker could still
P=0.0002428 z=7 P=0.0000647 z=8 P=0.0000173
catch up now, we multiply the Poisson density for
z=9 P=0.0000046 z=10 P=0.0000012 q=0.3 z=0
each amount of progress he could have made by the

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 CALCULATIONS 49

P=1.0000000 z=5 P=0.1773523 z=10 P=0.0416605

z=15 P=0.0101008 z=20 P=0.0024804 z=25
P=0.0006132 z=30 P=0.0001522 z=35
P=0.0000379 z=40 P=0.0000095 z=45
P=0.0000024 z=50 P=0.0000006 Solving for P
less than 0.1%... P < 0.001 q=0.10 z=5 q=0.15 z=8
q=0.20 z=11 q=0.25 z=15 q=0.30 z=24 q=0.35 z=41
q=0.40 z=89 q=0.45 z=340

Why this section is important?

It’s not. Don’t get bogged down in this, you will get
lost. Seriously, move along.

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Conclusion

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 CONCLUSION 51

Congratulations! If you have lasted all the way generated by intermediaries.

to the end, you should now have a fundamental • A blockchain is a type of distributed ledger or
understanding of Bitcoin and Blockchain, the decentralized database that keeps continuously
underlying technology that enables it to operate. In updated records of digital transactions (who
the final section, Satoshi summarizes the key points owns what). It is the underlying technology that
addressed throughout the white paper. enables Bitcoin to operate.

• Instead of relying on centralized intermediaries to

Here are the key takeaways : provide security and privacy, Bitcoin transactions

• To overcome the double spending problem use cryptography. Transaction information can’t

which results in reliance on intermediaries be linked to any identify because it is encrypted.

and a whole new set of problems (inability to Members of the network only see a random

make non-reversible transactions, increased bunch of letters and numbers.

costs, etc.) Satoshi proposes a new electronic • For a decentralized system like Bitcoin to operate
payment system that relies on complex computer without any central intermediary, there needs to
encryption (cryptography) instead of the trust be a way for the network to agree about which

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order transactions are generated in (to prevent history of the Bitcoin blockchain intact,
double spending) and which transaction records the Bitcoin network keeps a trace or root of
are valid (to deter any abuse of service like denial transaction data.
of service attacks and spamming). • You don’t have to be a miner that helps
• Proof of Work aka mining is performed to verify transactions to be involved in the Bitcoin
facilitate transactions on the blockchain and network. It’s also possible to send and receive
prevent abuse of service attacks. It involves bitcoins with a simple Bitcoin wallet.
miners (members in the network with high levels • A bitcoin can be both split into multiple parts
of computing power) to prove that a specified before being passed on and combined to make
amount work has been completed. a larger amount, thus ensuring practicality and
• To incentivize members to support the network efficiency.
and carry out the expensive and time- consuming
task aka mining, a reward is given in the form of
bitcoins.

• To maximize disk space and keep the entire

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THE BLOCKCHAIN REVIEW