The Bitcoin White Paper: 2. Transactions…
“Bitcoin: A Peer-to-Peer Electronic Cash System
Satoshi Nakamoto
October 31, 2008″
Onto the second section of the Bitcoin White Paper. Satoshi details what goes into a Bitcoin transaction.
“2. Transactions
We define 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 and adding these to the end of the coin. A payee can verify the signatures to verify the chain of ownership.
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The record of every chunk of bitcoin is tracked by the Bitcoin Network. Every participant in the network agrees to who sent some bitcoin, how much was sent, and who received it.
“The problem of course is the payee can’t verify that one of the owners did not double-spend the coin. A common solution is to introduce a trusted central authority, or mint, that checks every transaction for double spending. After each transaction, the coin must be returned to the mint to issue a new coin, and only coins issued directly from the mint are trusted not to be double-spent. The problem with this solution is that the fate of the entire money system depends on the company running the mint, with every transaction having to go through them, just like a bank.”
Satoshi goes into the problem of someone trying to spend their digital money more than once and cheat the system.
“We need a way for the payee to know that the previous owners did not sign any earlier transactions. For our purposes, the earliest transaction is the one that counts, so we don’t care about later attempts to double-spend. The only way to confirm the absence of a transaction is to be aware of all transactions. In the mint based model, the mint was aware of all transactions and decided which arrived first. To accomplish this without a trusted party, transactions must be publicly announced[1], and we need a system for participants to agree on a single history of the order in which they were received. The payee needs proof that at the time of each transaction, the majority of nodes agreed it was the first received.”
Satoshi shows how a complete list of all Bitcoin transactions has to be maintained and agreed upon to solve this double-spend problem.
References
- W. Dai, “b-money,” http://www.weidai.com/bmoney.txt, 1998.
Thanks to the Nakamoto Institute for making the whitepaper available freely via an Attribution-ShareAlike 4.0 International (CC BY-SA 4.0) license. More info on that here: https://creativecommons.org/licenses/by-sa/4.0/
Source: https://nakamotoinstitute.org/bitcoin/