There are many reasons to commemorate the decade since 2008, but the 10th birthday of Bitcoin is one that’s both surprising and encouraging. Bitcoin’s controversial and volatile nature has a way of obscuring the greater picture in favor of whatever crazy news about it dominate the day’s headlines. This could be why it seems Bitcoin’s first two-digit birthday has crept up on us: a ripe old age for a technology that’s been declared dead over 311 times, at last count.
Originally written under the pseudonym Satoshi Nakamoto, the title of Bitcoin’s white paper is deceptively simple. Bitcoin: A Peer-to-Peer Electronic Cash System is unassuming, yet the content of this 9-page document incited what can only be described as a revolution in the world of fintech. More relevantly, Bitcoin’s white paper laid out an inspiring new definition of money at a time when faith in the traditional financial system was still being salvaged. Satoshi launched the first Bitcoin client a year later and then handed the project off to the community in 2010, where it has since thrived as the open source of study, work, and fascination for millions across
Bitcoin will be around for many years and examining its white paper origins is a great exercise in understanding why. Satoshi Nakamoto’s blueprint describes a pure, raw Bitcoin, yet it does not anticipate many of the changes its creation endured to survive. On its tenth birthday and in honor of the durable nature of Bitcoin, we take a magnifying glass to the official “birth certificate” to determine if the potential outlined there is matched by ten-year-old Bitcoi
Opening the White Paper: Abstract
The 12-part white paper is headed by a brief, indented paragraph called an abstract, which is common for research papers. It should be noted that not all white papers start with an abstract, but all cryptocurrency projects do start with an abstract—a trend that was set b
Part 1: Introduction
Bitcoin’s introduction provides a strong case for the invention of a new online payments system. At the time, people could only link their bank account or credit card or use a platform like PayPal to transact online. They needed a third-party authority figure to ensure that services delivered were paid for to the right person and in the right amount. The problem is, third parties like banks and payment processors cannot reach optimum efficiency because they cannot avoid disputes. This has a two-fo
First, merchants cannot be sure that they will always be paid for services delivered and require sensitive information from customers. Second, banks have a minimum payment size before it becomes unprofitable with their overhead. Therefore, sending small amounts of cash to family and friends online is not possible without several middlemen, exchange fees, service charges, and other barriers. In contrast, cash paid for coffee can be verified immediately in person and at no cost, fo
After painting this picture, the idea of Bitcoin begins to form in the following scene: “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.” In place of the third party is an unchangeable chain of transactions that requires computational proof to sign and a system whereby a majority of connected peers are incentivized to keep the same record as t
In parts 2 through 9 of the Bitcoin White Paper Satoshi describes the basic components that will be needed to sustain the network, beginning with the broader idea of mass consensus for a digital signatures record. Each subsequent section describes what is required for the previous one, a domino-like chain of dependencies that circles back to its
Part 2: Transactions
In the second part of the white paper, the concept of the coin is finally introduced. Bitcoin is often depicted as a tangible golden coin by the media, but it is defined as “a chain of digital signatures” by its founding document. It is possible to own a Bitcoin by signing its unique hash on the blockchain, which is only possible if another peer has sent it to you. If they have, you can verify all its previous signatures by adding your own to the end, and the chain continues, forever written in stone by all of Bitcoin’s participants from then on. These signatures prevent double spending, however, without a centralized system, who determines whether someone has signed their coins off to two people at once? The ingenious solution is discussed in p
(screenshot of the wh
Part 3: Timestamp Server
Though it is now referred to as the ledger, Bitcoin’s white paper portrays the shared transaction log as a timestamp server. This is odd, as a server is a term usually reserved for centralized hardware, but regardless, the idea is similar. All people using Bitcoin must somehow agree on the same transaction history to prevent fraud, and it is made possible by requiring hashes of transactions to be time-stamped on the same sheet that every other trader is using. Each new timestamp includes the previous one, creating a universally verifiable chain of events carried on ad
Part 4: Proof of Work
The ideas set out in parts one through three are well and good, but they do not discuss how peers are supposed to go about time-stamping the ledger. This problem is addressed by a proof of work system, which makes peers expend a bit of effort to identify and verify the hashes that represent blocks of transactions. By representing a block as an SHA-256 hash, peers are required to spend computational power to produce a matching hash that generates a new addition to the ledger. It is like a one-time puzzle that the computer(s) must solve using computational power. This hash then becomes part of every hash added afterward, in a long chain of blocks that all participants agree i
Part 5: Network
People and their computers, also called “nodes,” must work to sign a block of transactions onto the chain, both to prove their good intentions and to provide the power that “keeps the lights on.” After sourcing enough power, all participant nodes must agree that the block contains no double-spent transactions before accepting it and then must use it in the previous hash of a new block. Nodes are also designed to consider the longest chain the most official version and retroactively accept verified transactions made elsewhere on the chain. Work is required to achieve this consensus because if it was costless to generate a block of verified transactions then it would be hackable. It must be unfeasibly expensive to attack Bitcoin, which ends up taxing its participants. To get people to work on behalf of others using Bitcoin, they must be rewarded for doing so
Part 6: Incentive
By now, the white paper has made it clear how a disparate group of peers is supposed to agree on the official record of their collective transactions, and how they are expected to enforce it. But, what is the benefit to them? This is where the idea of mining makes its first appearance, which has since become one of the most controversial aspects of bitcoin due to its rapid consumption of electricity. People who help process and verify blocks of transactions are submitting work in order to prove the specific contents of the blockchain at that point in time. By requiring CPU power, it is suddenly much too expensive for any single entity to pretend that its version of the chain i
The individuals contributing power to verify any block are rewarded for their efforts. Every successfully verified block creates a certain amount of Bitcoin that is split between the nodes that helped to add it to t
Part 7: Reclaiming Disk Space
A potential problem anticipated by Satoshi was that the blockchain might one day get too large. He illustrated in part 7 the idea of using a Merkle Tree system to create a chain of referrals back to a root hash. This system helps reduce the size of the blockchain and make it possible for devices with less memory t
Part 8: Simplified Payment Verification
If basic devices can connect as blockchain nodes, then they may only be able to host the most lightweight version of the blockchain. Nodes would only need to register the latest Merkle Tree branch, rather than the entire progression of hashes, in order to complete any single transaction and correctly assume that it is connected to the root of the correct chain.
Part 9: Combining and Splitting Value
Part 9 is an accounting rule that clears up the mess that happens when people decide to transact in fractions of a Bitcoin. Because any value that Bitcoin denominates will fluctuate, single transactions by the “cent” are unfeasible. Therefore, every transaction is capable of having several inputs and outputs that allow value to be split and
Part 10: Privacy
After the tech-heavy content of the first few parts of the white paper, Satoshi dials it back and discusses the idea of how banks achieve privacy for their customers — and how Bitcoin might do the same. Banks simply limit access to the transactions taking place, and they are the only one to record the identities of the participants. Bitcoin, with the condition of publishing each transaction as it happens in real time, cannot keep anything below
Therefore, users on the blockchain must use a public key to identify themselves to the network and an associated private key to sign the coins sent to them. This allows them to keep their identity safe while still verifying it on any tr
Part 11: Calculations
Satoshi needed closure on the idea of an impenetrable network, one unable to be attacked by bad actors. He outlines the math that makes this proposition an extremely unlikely one in part 11. The first thing to understand is that even if someone manages to create a chain rivaling the honest one, they would not be able to create Bitcoin from thin air because honest nodes will not accept an invalid transaction (one that does not match). All they can do is race the honest chain to be the longest and erase their own transactions from the block they create. Statistically, this is impossible because the longer the chain is before a dishonest actor begins competing with it, an exponentially greater amount of CPU power will be needed to
This closes the loop on Bitcoin. The final part of the white paper zooms back out and illustrates to the reader why each piece of Bitcoin’s delicately balanced ecosystem is necessary and how they all work together to provide a truly trustless payment
What has Changed Since 2008?
Bitcoin’s ten years contain an enormous history of ups and downs, both in terms of its dollar price but also its development and support. For an idea that started as an anonymous research paper, it is astounding how many people know about Bitcoin and how large its market capitalization is. To enjoy these accomplishments Bitcoin had to endure several diversions from its original wh
Mining centralization: Bitcoin’s popularity drove its price up and made mining very lucrative. Though the network is decentralized, those with enough money built large mining facilities in areas that subsidize electricity, thereby concentrating an important source of Bitcoin’s power into the hands of a few.
Incentives: Part 6 of the white paper outlines the rewards to miners, but even the largest of them are not immune to market forces. Mining Bitcoin gets progressively harder as the network grows, and so eventually mining it en masse requires a lot of hardware, electricity, and cooling. This creates a breakeven point for mining, which is a factor that was not anticipated in the white paper.
Blockchain’s size: Part 7 of the white paper is about keeping blockchain’s size at a minimum, and so far, it’s done a decent job. However, at 180GB at last measure, it is a significant burden for most retail machines
Privacy: Satoshi illustrates his vision for private transactions in part 10, but Bitcoin is now only private for those who take great caution to ensure their anonymity. Most Bitcoin is now traded between centralized exchanges that require ID and occasionally bank account verification, so it is not difficult to trace whom it belongs or where it is going. Bitcoin’s speculation-fueled popularity put it in the spotlight of government and central banks long ago, and though people understand institutional finance cannot ever destroy Bitcoin entirely, at this point it is as much a part of Bitcoin as regular u
Speed and Fees: Over time, Bitcoin’s core development team has made changes to its code to address problems with transaction speed and cost. They have altered the size of blocks being verified and opened up pathways for integration with off-chain solutions like the Lightning Network. This is an effective solution in the eyes of some, but Bitcoin has enough advocates to have people on both sides of
Distributed Payment Tech is Now an Immortal Idea
Ofir Beigel, CEO of 99Bitcoins sees Satoshi as a catalyst, not a rule-maker. “I don’t think the fact that we’re 'off' Satoshi’s vision is necessarily a bad thing. If Facebook would have kept its original vision it would have been a social network for universities exclusively, but the agility to pivot into what the world wants made it what it is today. The same I believe is true for Bitcoin. Satoshi played the role of the Genius Inventor to a tee: he created a spark that started a fire. Where the fire spreads to next is no longer up to him, and I think he knew—or kn
The many varying opinions on how best to operate Bitcoin mean that its family tree is enormous, but the primary coin is still the king. In terms of developer support on Bitcoin and the ecosystem that has grown around it, its market capitalization, and the recognition it has earned on a global scale, there is no arguing that Bitcoin is a force that has momentum. It also fights fiercely in pursuit of its original vision, more so than most open source
Experts like Dr. Daniel Kraft, CTO of XAYA and NameCoin developer confirm Beigel's point, adding that “the most important value of Bitcoin is the decentralized and trustless nature of transaction settlement. After all, enabling this through the introduction of PoW mining was the most influential and disruptive part of Satoshi's invention. And thanks to its diverse community stemming from the original inception (rather than some ICO or private launch), Bitcoin is today clearly much more decentralized, transparent, and democratic than all the other top cryptocu
The idea of distributed payment tech is now an immortal idea and will doubtlessly survive in some form moving into the next decade. For now, however, it is a great bet that Bitcoin will have many birthdays to come.