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Udaypratapsingh Rajput
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Bitcoin: A Peer-to-Peer Electronic Cash System Satoshi Nakamoto [email protected] wwnw.itcoin.ong 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 sill required to prevent double-spending. ‘We propose a solution tothe double-spending problem using a peer-o-peer network, The netwark timestamps transactions by hashing them into an ongoing chain of hhash-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 fiom the largest pool of CPU power. As long as a majarity of CPU power is controlled by nodes that are not cooperating to attack the network, theyll generate the longest chain and outpace attackers. ‘The network itself requites 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 wat happened while they were gone, 1, Introduction Commerce on the Intemet 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 non= reversible 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. ‘What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party. Transactions that are computationally impractical to reverse would protect sellers from fraud, and routine escrow mechanisms could easily be implemented to protect buyers. In this paper, we propose a solution to the double-spending problem using a peer-to-peer distributed timestamp server to generate computational proof of the chronological order of transactions. The system is secure as long as honest nodes collectively control more CPU power than any cooperating group of attacker nodes. 2. Transactions We define an electronic coin as a chain of digital signatures. Each owner transfers the coin to the ‘ext by digitally signing a hash of the previous transaction and the public key of the next owner and adding these to the end of the coin. “A payee can verify the signatures to verify the chain of ownership. Publis Key Pubic Koy Peat Koy t t ‘nner te “*Yomerte ‘“Vomnerze Syme {Seats [Senaue & of Owner te ‘Owner ze ‘Owner ie Prvala Key Srnata Koy rata Key The problem of course is the payee can't verify that one of the owners did not double-spend the coin, A common solution is to introduce a trusted central authority, or mint, that checks every transaction for double spending. After each transaction, the coin must be returned to the mint to issue @ new coin, and only coins issued directly from the mint are trusted not to be double-spent ‘The problem with this solution is that the fate of the entire money system depends on the company running the mint, with every transaction having to go through them, just like a bank We need a way for the payee to know that the previous owners did not sign any earlier transactions. For our purposes, the earliest transaction is the one that counts, so we don't care about later attempts to double-spend. The only way to confirm the absence of a transaction is 10 be aware of all transactions. In the mint based model, the mint was aware of all transactions and decided which arrived first. To accomplish this without a trusted party, transactions must be publicly announced [1], and we need a system for participants to agree on'a single history of the order in which they were received. The payee needs proof that atthe time of each transaction, the majority of nodes agreed it was the first received, 3. Timestamp Server ‘The solution we propose begins with a timestamp server, A timestamp server works by taking a hash of a block of items to be timestamped and widely publishing the hash, such as in a newspaper or Usenet post [2-5]. The timestamp proves that the data must have existed at the time, obviously, in order to get into the hash. Each timestamp includes the previous timestamp in ts hash, forming a chain, with each additional timestamp reinforcing the ones before it en piel ‘Block abek (er) Pew] J} [Ded Gee 4. Proof-of: Work To implement a distributed timestamp server on a peer-to-peer basis, we will need to use a proof- ‘of-work system similar to Adam Back's Hasheash [6], rather than newspaper or Usenet posts ‘The proofof-work involves scanning for a value that when hashed, such as with SHA-256, the hhash begins with a number of zero bits. The average work required is exponential in the number of zero bits required and can be verified by executing a single hash, For our timestamp network, we implement the proof-of-work by incrementing a nonce in the block until a value is found that gives the block’s hash the required zero bits, Onee the CPU effort has been expended to make it satisfy the proof-of-work, the block cannot be changed without redoing the work, As later blocks are chained after it, the work to change the block ‘would include redoing all the blocks after it + ara] Gio | oo The proof-of- work also solves the problem of determining representation in majority decision making. Ifthe majority were based on one-IP-address-one-vote, it could be subverted by anyone able to allocate many IPs. Proof-of.work is essentially one-CPU-one-vote. The majority probability the attacker will ever catch up from z blocks behind aa| 1, tesa) “late it p>4) Given our assumption that p > g, the probability drops exponentially as the number of blocks the attacker has to catch up with inereases. With the odds against him, if he doesn’t make a lucky lunge forward carly on, his chances become vanishingly small as he falls further behind. ‘We now consider how long the recipient of a new transaction needs to wait before being sufficiently certain the sender can't change the transaction. We assume the sender is an attacker who wants to make the recipient believe he paid him for a while, then switch it to pay back to himself after some time has passed. The receiver will be alerted when that happens, but the sender hopes it will be too late. The receiver generates a new key pair and gives the public key to the sender shortly before signing. This prevents the sender ftom preparing a chain of blocks ahead of time by working on it continuously until he is lucky enough to get far enough ahead, then executing the transaction at that moment. Once the transaction is sent, the dishonest sender starts working in secret on a parallel chain containing an alternate version of his transaction, The recipient waits until the transaction has been added to a block and z blocks have been linked after it, He docsn't know the exact amount of progress the attacker has made, but assuming the honest blocks took the average expected time per block, the attacker's potential progress will be a Poisson distribution with expected value: azzl ? To get the probability the attacker could still catch up now, we multiply the Poisson density for cach amount of progress he could have made by the probability he could catch up from that point: Sate" ligipl ifksz| & x | ifk>z) Rearranging to avoid summing the infinite tail ofthe distribution, EE litany ) werting to C code. Hnclude

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