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Author : Bitcoin.com
Read an important announcement about Bitcoin at https://www.bitcoin.com/info/bitcoin-cash-is-bitcoin from Bitcoin.com at The Bitcoin whitepaper, Bitcoin: A Peer-to-Peer Electronic Cash System, at https://www.bitcoin.com/bitcoin.pdf was published in 2008 by Satoshi Nakamoto. Bitcoin is revolutionizing the $1.8 trillion at http://www.mckinsey.com/industries/financial-services/our-insights/a-mixed-year-for-the-global-payments-industry global payments industry and people around the world are rethinking the meaning of their money. Moreover, the underlying technology and network that process Bitcoin transactions, known as blockchain, at https://www.bitcoin.com/info/what-is-the-blockchain is transforming industries as varied as banking, farming, logistics, healthcare, elections and manufacturing, to name a few. All this is made possible by Satoshi Nakamoto’s ground breaking work published in 2008 which outlines what Bitcoin is and how it works. There are many projects now with the word “bitcoin” in them. The real Bitcoin at https://www.bitcoin.com/info/what-is-bitcoin-cash is the one that is most inline with the original vision of Bitcoin, as presented in the whitepaper. How To Use This Guide. Bitcoin.com offers a simplified explanation of Nakamoto’s work. We provide annotations for all 10 sections of the whitepaper. Commentary from Satoshi Nakamoto is also provided to distinguish the author’s views from those of Satoshi Nakamoto’s.
1. Introduction. Bitcoin creator, Satoshi Nakamoto at https://www.bitcoin.com/info/who-developed-bitcoin discusses the web’s reliance on trusted third parties such as banks and credit card companies to process electronic payments. The traditional method may work for most transactions but problems do occur when financial institutions facilitate the buying and selling of goods on the internet. Here are some of the weaknesses of traditional electronic payments involving third parties. 1.1 Transactions can be reversed since banks must mediate disputes that inevitably arise. Think of disputes that routinely take place between merchants, consumers and other parties, such as payment processors, PayPal or tax authorities. 1.2 Banks’ intervention (i.e., mediation) increases transaction costs and this also limits the minimum practical transaction size. The reversibility of transactions becomes a problem when a provider has delivered non-reversible services. Consumers frequently buy low-cost items on the web, such as $5 keychains and $10 eyeglasses. However, bank involvement costs a lot and these costs are passed on to consumers through transaction fees and other charges. Consider all the mediation and litigation expenses that pile up in a given year and you can see that transaction costs can be significant. Moreover, if a provider completes a service he should rightfully get paid. But the current system allows transactions to be reversed, putting a service provider at risk of not getting paid.
1.3 The possibility of a transaction’s reversal hangs over everyone. And that requires people to trust a third party such as banks to resolve payment disputes. Many merchants and consumers don’t want to trust a financial institution. They’re expensive; may not be trustworthy; are frequently hacked; and often give too much information to the government without informing the affected party. All this also create privacy concerns. In this section, Nakamoto outlines the limitations of the traditional payment system, and he is setting up the audience for his proposed solutions. 1.4 The system accepts a certain percentage of fraud as unavoidable. Nonetheless, fraud increases everyone’s cost of doing business. Nakamoto proposes an electronic payment system that is based on cryptographic proof instead of trust. Cryptography involves the use of codes and protocols to establish secure communications. Such a system would let two parties transact directly with each other. The new method, namely Bitcoin, features the following. 1. Peer-to-peer payments over an online network. 2. The elimination of third parties and replacing trust with verification. 3. Transactions would be irreversible and Nakamoto argues that irreversibility would protect sellers from fraud. Escrow mechanisms can be implemented to protect buyers. 4. A peer-to-peer distributed timestamp server would generate mathematical proof of the chronological order of transactions.
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