Bitcoin white paper explained by a high schooler .
Bitcoin has a major and significant influence in the blockchain sphere. The legacy that it has can’t be denied. And one of the main elements of this legacy is its white paper.
This is Why I decided to make this series of articles. My goal ,for this series of articles, is to try to summarize the bitcoin white paper and some of the underlying concepts that it holds so it is better to understand for individuals that don’t have a technical background.
Abstract and Introduction.
With the increase of internet-based commerce, the need of doing transactions online has also increased. Unfortunately, the execution of any kind of transaction over the internet relies heavily on financial institutions and third parties for the processing of electronic payments.
Imagine that you are buying a t-shirt on an online marketplace. To be able to transfer the fund from your account to the person that sells the t-shirt. The website needs to send a request to your financial institution, which will then go into your account to verify that you have enough funds and then send the required fund to the marketplace website. The website ,after receiving the fund, will send them to the t-shirt seller bank that will then put those funds in its account.
This scenario demonstrates how online purchases and online transactions rely heavily on financial institutions like banks for the processing of electronic payments and transactions.
While this system works well it still suffers from the weakness of having to trust a third party. If you do not trust those party you don’t have a lot of other options for doing transactions on the internet.
Trust is not the only downfall of this system. The cost of mediating by financial institution increase the transaction fee. And pose a lot of hassle for both consumers and sellers.
As stated earlier the mediation made by financial institution increase the price of doing transaction. Two main reasons why financial institutions need to meditate is because online transactions are reversible and because of something called the double-spent attack.
Reversibility means that transaction can be undone and as the bitcoin paper itself state ‘With the possibility of reversal, the need for trust spreads’. The second threat can be described as one party being able to make the same transaction twice you can compare it has someone spending the same money twice.
Now I want you to imagine if there was a version of electronic cash that would permit you to send the payment for any item you wish to buy online. Without the need of going through any financial institution in other words a purely peer-to-peer version of electronic cash.
Bitcoin proposes a way to make payments over a communications channel by using cryptographic techniques and a peer-to-peer network instead of relying on any third parties.
To make the network robust against the double-spent attack and other similar threats the network timestamps each transaction that is made on the network by hashing them in a long chain of a hash-based proof-of-work block. This allows creating a record of transactions that can not be changed without redoing the proof of work.
This system works as long as a majority of computing power is controlled by nodes that are not working against the network or trying to attack it. This system is secure as long as a majority of good nodes are in the network.
Deep dive into some technical term.
Network.
A network consists of many electronic devices connected to exchange information.
Node.
A node is an electronics device that is in a given network.
Peer-to-peer network.
A peer-to-peer network is a special kind of network where each node has equal permissions and responsibilities for processing data. If we compare it to traditional client-server networks, no devices in a peer-to-peer network are designated solely to serve or to receive data.
Timestamp.
Timestamp consists of digitally recording a particular event.
Hash.
Hashing consists of passing data through a cryptographic algorithm to encrypt the given data.
Proof-of-work.
Proof-of-work is a special algorithm that determines if the block that is added to the record is valid.
TL;DR
- With the increase of internet-based commerce, the need of doing transactions online has also increased.
- The execution of any kind of transaction over the internet relies heavily on financial institutions and third parties for the processing of electronic payments.
- Online purchases and online transactions rely heavily on financial institutions like banks for the processing of electronic payments and transactions.
- Bitcoin proposes a way to make payments over a communications channel by using cryptographic techniques and a peer-to-peer network instead of relying on any third parties.
