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Investors are fickle, they often turn to any fashion investment that offers the most immediate opportunity to get rich quickly. Bitcoin has attracted hordes of investors in 2017, its price has risen above the value of $ 10,000, but its major declines so far in 2018 have caused the collapse of the cryptocurrency. However, one thing that investors can not deny is that bitcoin has left its mark in the world, both with its huge price gains and with the increase in interest from both investors and advocates of blockchain technology in general.
While many investors turn to the painful memories of the financial crisis 10 years ago, there is another anniversary coming soon. In October 2008, the pseudonym Satoshi Nakamoto published a white paper about the concept of bitcoins. Even a decade later, the document has a lot to explain about how bitcoin works, and it is necessary to read for anyone who wants to invest in cryptocurrencies. In honor of the tenth anniversary of bitcoin, here are 10 key quotes from the Nakamoto newspaper.
Image source: Getty Images.
1. Bitcoin got rid of the intermediary
Internet commerce has come to rely almost exclusively on financial institutions that serve as trusted third parties. … What we need is an electronic payment system based on cryptographic evidence rather than trust.
Supporters of cryptocurrency adore the fact that bitcoin is not based on centralized authority as a bank, especially given the potential for breach of trust. For example, credit card companies allow buyers to reverse their transactions under certain circumstances, making permanent payment impossible for a seller. Bitcoin has driven third parties away from the equation, making payments reliable and irrevocable.
2. Fundamental vulnerability of Bitcoin
The system is safe as long as the honest nodes collectively control more CPU power than any cooperating group of attacker nodes.
To work, bitcoin must be hard enough to decipher that anyone trying to put together a fraudulent chain of transactions can not overcome the real blockchain. This requires computational power, and identifies what could ultimately be a threat to cryptocurrency: that sufficient numbers of people trying to overthrow the Bitcoin domain could come to threaten its integrity.
3. The basis for trust in bitcoins
We need a way for the beneficiary to know that previous owners have not signed any previous transactions. … The solution we propose starts with a timestamp server.
The biggest threat to the use of bitcoins as a payment system is the potential for double spending. With a physical currency, double spending is impossible because you have to hand over the currency to the seller. The fundamental reliability of Bitcoin derives from the idea that everyone knows every previous transaction, allowing them to trust what has come before.
4. Because the proof of work is essential
Once the CPU effort is exhausted to meet the job tests, the block can not be changed without repeating the job. Since the subsequent blocks are concatenated, the block edit job includes repeating all the blocks after it.
One of the reasons why bitcoin has been so strong is that it has become stronger over time and the demonstration of work is an essential component of this strength. As the blockchain has become longer, the effort required to successfully attack it has diminished. With the increase in the difficulty of testing the work over time, the bitcoin further improves its defenses.
5. How bitcoin continues to grow
The nodes always consider the longer chain to be the correct one and will continue to work to extend it.
A problem with bitcoins as it has grown in popularity is that not all nodes in the bitcoin network will always have the latest version of the blockchain. Over time, however, subsequent transactions will more widely distribute the longest blockchain, allowing the network to reach the maximum level.
6. The incentive to extract bitcoins
By convention, the first transaction in a block is a special transaction that starts a new currency owned by the block creator. This adds an incentive for nodes to support the network and provides a way to initially distribute the coins in circulation.
Bitcoin extraction has always been an interesting part of the cryptocurrency movement, and with the bitcoin price increase, huge amounts of computing power now commit to unlocking new blocks and grabbing the small amount of bitcoin which derives from success. As the document points out, mining also offers those who possess immense computing power an incentive not to try to subvert the blockchain itself, since they can simply claim new bitcoins.
7. Dealing with the growing blockchain
Once the last transaction in a coin is buried under a sufficient number of blocks, the transactions will be spent before it can be discarded to save disk space.
Bitcoin processing has become slower as its popularity has grown, but the bitcoin founders have anticipated the need to prune the growing blockchain. The methodology involves compressing older blocks using shorter hashes that are sufficient once the past transactions have accumulated. However, the theoretical pruning of the blockchain proved to be more problematic than expected in the white paper, due in part to the fact that it can not be guaranteed that any identified block to prune does not have vital information for the rest of the blockchain.
8. Manage larger transactions
Although it would be possible to manage the coins individually, it would be cumbersome to carry out a separate transaction for every cent of a transfer. To allow dividing and grouping values, transactions contain more inputs and outputs.
Currencies arrive in units such as 1-euro coins or $ 20 bills, and the bitcoin could theoretically be set up in this way too, with discrete units. However, it is more efficient to allow transactions of variable sizes. This essentially allows users to pay with a "4-bit bill" rather than forcing the blockchain to include four transactions involving a single bitcoin each, as would be necessary for a $ 4 cash transaction using four $ 1 invoices.
9. Bitcoin privacy
The public can see that someone is sending an amount to someone else, but without information linking the transaction to anyone. This is similar to the level of information disseminated by scholarships, where time and size of individual exchanges, the "tape", are made public, but without telling who the parties were.
Privacy is a valuable advantage of cryptocurrency transactions compared to most payments. Bitcoin has proved to be not as private as some users would like, and this has led to the creation of even more privacy-focused competitors. However, the white paper takes into consideration other measures that bitcoin users can adopt, including the use of slightly different key information in each transaction.
10. Bitcoin defense mechanism
The nodes will not accept an invalid transaction as payment and the honest nodes will never accept a block containing them. An attacker can only try to change one of his transactions to withdraw the money he has recently spent.
Finally, the white paper examines the possibilities for an attacker to generate an alternative blockchain. To do this, the attacker must work fast enough so that his fake version gets the acceptance. Otherwise, if the attacker is behind other nodes, the chances of reversing a transaction passed at the end approach zero.
Is bitcoin here to stay?
The sharp decline in bitcoin prices has made some investors wary of concluding that bitcoin can survive in the long run. However, given the way the basic principles of the white paper worked, bitcoin has established itself as a key technology – and that it will survive as a legacy, regardless of what will happen to bitcoin prices in the long run.
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