Abstract
The abstract highlights the core concept of Bitcoin: a purely peer-to-peer version of electronic cash. The paper proposes a solution to the problem of double spending using a peer-to-peer network that 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.
1. Introduction
In the introduction, Nakamoto discusses the issues inherent in the trust-based model of traditional financial institutions and proposes an electronic payment system based on cryptographic proof rather than trust.
2. Transactions
In this section, Nakamoto defines an electronic coin as a chain of digital signatures. Each owner transfers the coin to the next by digitally signing a hash of the previous transaction and the public key of the next owner. The issue of double-spending is addressed, and a method for preventing it without a trusted party is proposed: transactions must be publicly announced, and a system is needed for participants to agree on a single history of the order in which they were received.
3. Timestamp Server
A timestamp server solution is proposed which works by taking a hash of a block of items to be timestamped and widely publishing the hash. Each timestamp includes the previous timestamp in its hash, forming a chain, with each additional timestamp reinforcing the ones before it.
4. Proof-of-Work
The paper describes how to implement a distributed timestamp server on a peer-to-peer basis using a proof-of-work system. This system involves scanning for a value that, when hashed, begins with a number of zero bits, with the average work required being exponential in the number of zero bits required. This system ensures that a majority of CPU power is controlled by honest nodes.
5. Network
This section describes the steps to run the Bitcoin network which involve broadcasting new transactions to all nodes, collecting new transactions into a block, finding a difficult proof-of-work for its block, and accepting the block only if all transactions in it are valid and not already spent.
6. Incentive
Finally, Nakamoto discusses the incentives for nodes to support the network. The first transaction in a block starts a new coin owned by the creator of the block. This provides a way to initially distribute coins into circulation, since there is no central authority to issue them. It also suggests that transaction fees could be used to incentivize honest behavior once a predetermined number of coins have entered circulation.