Bitcoin is a
Peer-to-Peer Electronic Cash System.
What does a
peer-to-peer electronic cash system allow? A peer-to-peer
version of electronic cash would allow online payments to be sent directly from
one person to another without going through financial institutions. (ex. banks).
A digital
signature provides a solution to online payments, but the benefits would be
lost if a trusted third party is needed to prevent double-spending. A solution to this double-spending is a
peer-to-peer network.
The network
timestamps the transactions by hashing them into an ongoing chain of hash-based
proof of work, which forms a record that cannot be changed without redoing the
initial proof of work.
What
exactly is hashing? It is the transformation of a string of
characters into a usually shorter fixed-length value or key that represents the
original string. It is used
to index and retrieve items in a database because it is faster to find the item
using the shorter hashed key
than to find it using the original value.
The longest chain serves as proof of the sequence of events shown on the
chain, it shows that it came from the largest pool of CPU power. The CPU power controlled by the nodes
(miners); not attacking the network, generate the longest chain and outruns any
potential attackers to the chain.
The peer-to-peer network does not require a lot of structure.
Work done by the nodes (miners) are broadcasted on the chain. Nodes join and leave the network at
will. The hash they leave behind is
proof of their work.
Based on my interpretation of Satoshi Nakamoto's White Paper.
