Blockchain Review | Some Key Points of Satoshi Nakamoto in the Bitcoin Whitepaper

Satoshi Nakamoto

It deserved to review the bitcoin whitepaper written by Satoshi Nakamoto 11 years ago.

IN SUMMARY, there are 7 key points:

1. The root problem with conventional currency is all the trust that's required to make it work.

2. The fact that new coins are produced means the money supply increases by a planned amount, but this does not necessarily result in inflation. 

3. In a few decades when the reward gets too small, the transaction fee will become the main compensation for nodes.

4. This is the first time we’re trying a decentralized, non-trust-based system.

5. The utility of the exchanges made possible by Bitcoin will far exceed the cost of electricity used.

6. The usual framework of coins made from digital signatures, which provides strong control of ownership, but is incomplete without a way to prevent double-spending. A peer-to-peer network using proofs-of-work to record a public history of transactions quickly becomes computationally impractical for an attacker to change if honest nodes control a majority of CPU proof-of-worker.

7. 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. 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.

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The root problem with conventional currency is all the trust that's required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must bet rusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts.

In this sense, it's more typical of a precious metal. Instead of the supply changing to keep the value the same, the supply is predetermined and the value changes. As the number of users grows, the value per coin increases. It has the potential for a positive feedback loop; as users increase, the value goes up,which could attract more users to take advantage of the increasing value.

The fact that new coins are produced means the money supply increases by a planned amount, but this does not necessarily result in inflation. If the supply of money increases at the same rate that the number of people using it increases, prices remains tablet. If it does not increase as fast as demand, there will be deflation and early holders of money will see its value increase. Coins have to get initially distributed somehow, and a constant rate seems like the best formula.

As computers get faster and the total computing power applied to creating bitcoins increases, the difficulty increases proportionally to keep the total new production constant. Thus, it is known in advance how many new bitcoins will be created every year in the future.

Right. Otherwise, we couldn’t have a finite limit of 21 million coins, because there would always need to be some minimum reward for generating. In a few decades when the reward gets too small, the transaction fee will become the main compensation for nodes. I’m sure that in 20 years there will either be very large transaction volume or no volume.

A lot of people automatically dismiss e-currency as a lost cause because of all the companies that failed since the 1990’s. I hope it’s obvious it was only the centrally controlled nature of those systems that doomed them. I think this is the first time we’re trying a decentralized, non-trust-based system.

It's the same situation as gold and gold mining. The marginal cost of gold mining tends to stay near the price of gold. Gold mining is a waste, but that waste is far less than the utility of having gold available as a medium of exchange. I think the case will be the same for Bitcoin. The utility of the exchanges made possible by Bitcoin will far exceed the cost of electricity used. Therefore,not having Bitcoin would be the net waste.

We have proposed a system for electronic transactions without relying on trust. We started with the usual framework of coins made from digital signatures, which provides strong control of ownership, but is incomplete without a way to prevent double-spending. To solve this, we proposed a peer-to-peer network using proofs-of-work to record a public history of transactions that quickly becomes computationally impractical for an attacker to change if honest nodes control a majority of CPU proof-of-worker.

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.

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