bitcoin.txt

Abstract. A purely peer-to-peer version of electronic cash would allow online
payments to be sent directly from one party to another without going through a
financial institution. Digital signatures provide part of the solution, but the main
benefits are lost if a trusted third party is still required to prevent double-spending.
We propose a solution to the double-spending problem using a peer-to-peer network.
The network 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. The longest chain not only serves as proof of the sequence of
events witnessed, but proof that it came from the largest pool of CPU power. As
long as a majority of CPU power is controlled by nodes that are not cooperating to
attack the network, they'll generate the longest chain and outpace attackers. The
network itself requires minimal structure. Messages are broadcast on a best effort
basis, and nodes can leave and rejoin the network at will, accepting the longest
proof-of-work chain as proof of what happened while they were gone. Bitcoin is a
peer-to-peer electronic cash system.

Commerce on the Internet has come to rely almost exclusively on financial institutions
serving as trusted third parties to process electronic payments. While the system works
well enough for most transactions, it still suffers from the inherent weaknesses of the
trust based model. Completely non-reversible transactions are not really possible,
since financial institutions cannot avoid mediating disputes. The cost of mediation
increases transaction costs, limiting the minimum practical transaction size and
cutting off the possibility for small casual transactions, and there is a broader cost
in the loss of ability to make non-reversible payments for nonreversible services. With
the possibility of reversal, the need for trust spreads. Merchants must be wary of
their customers, hassling them for more information than they would otherwise need. A
certain percentage of fraud is accepted as unavoidable. These costs and payment
uncertainties can be avoided in person by using physical currency, but no mechanism
exists to make payments over a communications channel without a trusted party.