Bitcoin Whitepaper — Explained

This page breaks down Satoshi Nakamoto’s “Bitcoin: A Peer-to-Peer Electronic Cash System” into plain language, with links back to the original PDF.

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1. Introduction

Problem: Online payments depended on trusted intermediaries (banks) that could reverse transactions.

Solution: A peer-to-peer system that lets two parties transact directly without a middleman.

Why it matters: Digital cash with no single point of control.

2. Transactions

Transactions transfer value by chaining ownership: each new owner signs the previous output to the next owner’s public key.

Key idea: Signatures prove ownership; nodes verify the chain of signatures.

3. Timestamp Server

A timestamp server batches transactions into a block and publicly announces the hash, proving data existed at a certain time.

4. Proof-of-Work

Miners search for a nonce so that the block hash is below a target. This makes rewriting history prohibitively expensive.

Intuition: To change one block, you’d need to redo the work for that block and all after it — and catch up to the honest chain.

5. Network

  • New transactions broadcast to all nodes.
  • Miners bundle valid transactions into blocks.
  • Nodes always accept the longest (most work) valid chain.

6. Incentive

Block rewards + fees pay miners, aligning their incentives to secure the network.

7. Reclaiming Disk Space

Old transactions can be pruned by keeping only block headers after outputs are spent.

8. Simplified Payment Verification (SPV)

Light clients verify transactions by checking proof the transaction is in a block, without downloading the full chain.

9. Combining & Splitting Value

Transactions may have multiple inputs/outputs so value can be combined or split as needed.

10. Privacy

Public keys are not directly tied to identities; privacy improves by using new addresses for each transaction.

11. Calculations

Back-of-the-envelope math estimates attacker success probability and resource costs for attacks.

12. Conclusion

Bitcoin proposes a system for electronic transactions without relying on trust, using a distributed timestamp server and proof-of-work to create a public history that quickly becomes computationally impractical to alter.

Study tips

  • Skim the PDF once, then re-read with this outline.
  • Focus on Sections 4–6 to understand security and incentives.
  • Try our quiz after reading.

Key takeaways

  • Proof-of-work secures history and makes rewriting expensive.
  • Nodes follow the most-work valid chain, not leaders.
  • Privacy improves by using new addresses and minimizing data reuse.