Dissecting Bitcoin: Whitepaper [0]

Whilst this article is being written, bitcoin is in the red falling more than 66% from its all-time high which it achieved less than a year ago. Ethereum, Solana, and many other altcoins share the same fate and have resulted in a massive loss for the industry. But I am an optimist and I believe WAGMI!

Let’s get to the technology and the whitepaper of Bitcoin. We will dissect the key aspects of the whitepaper of Bitcoin and explore the technology under the hood.

Prepare for the ride:

This article assumes the reader to have a preliminary knowledge of the computing world. As the article is addressed to the novices in the world of web3, it is important to note the below two points:
1- The concepts won’t be explained from a mathematical point of view but rather compared with events and occurrences in the everyday life. Do expect few/no mathematical formulas and indulge in the analogical aspect of the most loved cryptocurrency.

2- Any individual will get a glimpse of the world of web3 through this article. As this is just the beginning of a series of articles directed toward the world of web3, we will gradually progress toward complex mathematical and cryptography problems.

Let’s dive into the world of Bitcoin often referred to as a store of value by some individuals.

Bitcoin first found its mention two months after the Lehman crisis in 2008. I would like to recommend the book “The Big Short: Inside the Doomsday Machine” by Michael Lewis which covers the entire story of the Housing market crisis and its impact on the world economy. A movie has also been produced inspired by the book with the name: ‘The Big Short’ which provides a visual depiction of the fraud conducted by the big banks in the name of CDOs and synthetic CDOs. The mortgage bonds and the housing market were a bubble destined to destroy the financial world in the United States Of America and the whole world had to pay its price.

The Origin Story of Bitcoin:

Not so surprisingly, in November 2008, a new asset class that did not have the backing of any formal bank came into existence by the name of Bitcoin. On 1st November 2008, an anonymous individual who is presumed to be active in the field of technology during that time wrote an email where he confessed his efforts to build a new electronic cash system that is fully peer-to-peer with no trusted third party. He also listed a link to the white paper

The original link for the bitcoin whitepaper: https://bitcoin.org/bitis coin.pdf

The bitcoin whitepaper discusses the underlying and we will explore the first 3 pages in part 1 of comprehending bitcoin by analyzing its origins.

The introduction of the whitepaper clearly describes the amount of distrust Satoshi Nakamoto(a pseudonym used by the creator of Bitcoin) possesses for the centralized banking industry. He proposed the need for an electronic transaction system where the proof of transaction can be stored digitally rather than by a record-keeping third party. This would allow us to make transactions without worrying about the all-peering-eyes of the government.

51% attack and double spending issues:

It also mentions the double-spending problem and the 51% attack which can be understood by the examples given below:

1- Double spending problem:

Let’s imagine that you have a resource A to be sent to an individual.
Let’s assume the sender to be X and the receiver to be Y. Now, the space in that you store the resource is ‘a’ and the pace at which it will be stored by individual Y is ‘b’. To record the transaction, you can either:

i- Call a witness Z
ii- Store information on a record that is accessible anywhere and can be seen by anyone who knows the specific details of the deal.

Bitcoin relies on the second notion described above and deals with the peer-to-peer transaction by storing the cryptographic hash of information which entails the transaction that takes place between two bitcoin addresses.

2- 51% attack problem:

Nodes with malicious intent can collaborate to attack the network to take it down or change the rules for all the nodes connected to the network. It is also quite possible that the attackers change the underlying protocol that governs the network falling short in the integrity of the network. This can be solved by providing positive reinforcement to add an excessive number of honest nodes and by providing a backdoor reinforcement policy that provides the attacker to play by the rules and tie the network controller’s fate to the success of the protocols and the integrity of the network.

Proof of Work:

The transaction section of the bitcoin whitepaper deals with the digital coin as a chain of digital signatures. The double spending problem is resolved by public announcement of the transaction and by the agreement of the transaction history by the involved parties.

We will now explore the proof of work mechanism that Bitcoin uses to validate the transaction and execute every single type of exchange without the requirement of a central entity. The transactions are hashed into an ongoing chain forming a record that can’t be modified without duplicating the proof of work. The timestamp server takes the hash of a block as input and publishes the hash on an accessible forum. Each timestamp is proof that data must have existed at that time that was supposed to be transferred/or is transferred to the destination. An accurate analogy would be to broadcast the news on tv/radio channels. The record of the transaction can be seen by anyone and can be used as ‘proof’ rather than a stamp by a central institution.

The proof of work also defines the rule of one-CPU-one-Vote for the entire network. Thus, if a majority of the power is controlled by the honest nodes, the honest chain will grow the fastest and will outpace and outnumber any other competing chain. This would allow for the protection of the network and will ensure that the power of the network remains with the participants with better intent and incentive for the progress of the network.

The difficulty to provide proof of work increases with the increase in the number of nodes as the average number of blocks per timeframe also increases. The advantage of blockchain technology can be understood by the fact that the modification of a single block requires the attacker to modify the entire blockchain which consists of numerous blocks.

We will explore the remaining sections of the whitepaper in the upcoming articles in the same series. I express my gratitude to the reader for giving his valuable time. I hope the article provided you with an overview of the world of Bitcoin.