Where did Bitcoin come from? An introduction to the Bitcoin Whitepaper

The Bitcoin Whitepaper was shared 12 years ago

Today marks twelve years since the concept of Bitcoin was officially released into the world. It came as a successor to a long history of attempts to create trustless digital currency. Many people misunderstand Bitcoin as a radical, unconventional experiment, but in reality it is the first proven electronic currency, a practical solution resulting from many prior failed experiments.

This article will seek to contextualize the Bitcoin whitepaper, covering where it came from and the projects which enabled its success, and examine the herculean task of improving it, gradually, over the years. To illustrate how the whitepaper translates into the real world, the piece concludes with an overview of how you’ll encounter whitepaper concepts in the real world, using the Trezor Suite interface.

Honoring the day as an unofficial holiday, Trezor is launching a shop-wide discount to run from today all the way until November 30th. This gives plenty of time to sit down your friends, family, colleagues and peers, and have the Bitcoin conversation with them. Using the code TECHMONTH2020, everyone can claim 10% off everything in the Trezor Shop, making now the perfect time to get everyone into crypto. Read more about Trezor Tech Month discounts and find answers to the most frequently asked questions in this dedicated Tech Month blog.

What came before Bitcoin?

The history of digital money takes two forms, that which is centralized: managed by people and institutions, dependent on strict processes and influenced by external forces such as governments, and that which is decentralized: purely digital, managed by network rules and dependent on strict algorithms, protected from external interference through cryptography and game theory.

The former is the money most people are comfortable with, thanks to decades of progress in terms of usability, but the drawbacks are significant. In this system, you willingly give your money to someone else to look after for you and facilitate transactions. The latter money is Bitcoin. It can be transferred to anyone without needing a third party to hold it for you, or arrange transactions on your behalf.

Creating a reliable peer-to-peer mechanism for value transfer was not easy. Influential figures such as Wei Dai, Adam Back and Nick Szabo had proposed various approaches, with their experiments influencing Satoshi Nakamoto in a variety of ways. Making the system entirely trustless and fully functional was elusive to creators of bmoney, HashCash and bit gold, but their work was not in vain. Bitcoin’s mining mechanism, for example, is noted in the whitepaper as being modeled on HashCash.

It is important to recognize that Bitcoin did not just appear overnight as a spark of inspired genius. It is an amalgamation of older ideas that showed promise, repackaged and refined into the first model that has worked well enough to be adopted by millions of people and survive twelve years of almost uninterrupted use. Bitcoin is an experiment, but so far it is performing better than almost any other system on the planet.

Theseus’ Bits: Is today’s Bitcoin the same that Nakamoto described in the Whitepaper?

A whitepaper is generally used to introduce an idea concisely and comprehensively. It provides context and detail about a solution but it does not restrict future development that improves upon the idea. Bitcoin has changed in many ways, big and small, over the years.

Big, controversial changes like segregated witness, first intended to fix a malleability bug, paved the way for the Lightning Network, for example. Crucially, the process of change has been slow, methodical, and appropriately cautious.

Adding or amending rules of the network requires buy-in from a majority of full nodes (the computers who maintain the blockchain) and therefore has to be thoroughly proven to be a benefit before it will be adopted. Because it is completely decentralized, it is a sometimes frustratingly democratic process, and can mean that updates take years to be agreed upon. An example of this would be Taproot, a privacy-enhancing update which has been in development for years. It is scheduled to be launched with the upcoming Bitcoin Core 0.21, but still only lays the foundations for a mechanism which some speculate may not be publicly available for another two or three years.

The GitHub page for Bitcoin Improvement Proposals, or BIPs, offers insight into the continuous development efforts to improve Bitcoin. As you can see in the list, many BIPs are rejected or remain unmerged indefinitely. For a truly transparent, decentralized form of money, it has to be like this. Centralized solutions usually only need consensus from a small subset of controlling nodes, which results in quicker development with less oversight. This is why Bitcoin development is so much more conservative than most altcoins. Development of a global currency can not be in the hands of a few individuals or organizations.

From Concept to Product: Bitcoin Whitepaper archetypes in Trezor Suite

While Bitcoin itself changes slowly, the tools used to interact with the network are improving quickly in terms of usability, privacy and security, helping to deliver a comfortable way to work with Nakamoto’s concepts. Using Trezor Suite, which is now in public beta, you can see exactly how the whitepaper concepts are translated into an intuitive process.

Transactions

Transactions are the main purpose of Bitcoin. They have been designed in a way that allows anyone to confirm how much bitcoin a particular address has available, and to keep track of any coins that move from one to another. Have a read of our blog understanding bitcoin transactions to learn the basics.

When sending a transaction in Trezor Suite, the interface makes it clear that Bitcoin still works very much the same way as it was intended to when first conceptualized. In the image below much remains faithful to the original concept, while making it easier to use.

Wallet interface as shown in Trezor Suite

Much here is familiar to the average Bitcoin user, but the whitepaper does not get down to specifics on many areas. One exception is the fee structure, which continues to provide enough incentive to keep the network running, thanks to Bitcoin’s price increase and the economics playing out much like envisioned. Trezor Suite makes it easy to weigh up convenience against cost, by calculating the time your transaction will take at the desired price, based on the current network conditions.

How bitcoin addresses have changed

The recipient’s address is a mathematically shortened version of the public key described in the whitepaper. Technological developments have led to a change of address types twice in Bitcoin’s history, while the first version of the Bitcoin software used a different format for addresses, all beginning with the number 1. The need for more complicated transaction parameters led to a second version, beginning with the number 3. Then, following SegWit’s activation, a third type, Bech32 addresses, have grown popular and are formatted as shown in the screenshot, starting with bc1. All three types are still usable, but ‘Native SegWit’ addresses can be used to perform cheaper transactions by allowing more transactions to be sent in every mined block.

Privacy simplified

You have a lot of freedom with Bitcoin transactions. One of the notable features you can make use of is a locktime, which lets a transaction be broadcast at a later block height, potentially from a different computer. This lets you retain more privacy when you need it, so it is kept in easy reach and made as simple as possible in Trezor Suite. An upcoming implementation of Tor will further enhance privacy, bringing all the benefits of another proven open-source project to work in harmony with Bitcoin.

Receiving Inputs and Outputs

The above transaction sent all the bitcoin that was held at the address, leaving the address empty. Had the amount sent been less than the total amount held in the address, the remaining bitcoin would be sent to a change address, as touched up in the whitepaper. This can be configured but is not recommended, as it could end up with your coins being lost if set up incorrectly.

Signatures are combined resulting in outputs that don’t reveal inputs credit: wiki.bitcoin.it

Coin routing still functions like the whitepaper describes, where multiple inputs can be combined, sent and arrive at multiple outputs rather than a separate transaction being made for each one. This is made easy with a way to add multiple recipients but the opportunity exists to use new third-party tools like CoinJoin to make it more difficult to trace inputs to outputs. This development is seen as a way to subvert improved blockchain analysis techniques and restore privacy that has been lost since Bitcoin’s conception.

What you can do to help make Bitcoin better

As a decentralized network, Bitcoin relies on honest nodes. Since the first block was mined, the network has had incredible uptime, thanks to the community’s perseverance in keeping their nodes online. The whitepaper made presumptions about how dependable a peer-to-peer network of nodes would be and somehow turned out correct. It is people who run nodes that change and improve how Bitcoin works, so you can soon use Trezor Suite to connect to a node of your own and help make the network more dependable.

If you want to make a difference without having to get too technical, just help people learn to use Bitcoin. It has become much more easy and safe enough for almost anyone to use. Take time to speak with people in your community and educate them about Bitcoin. When the time comes for adoption, you will have helped many people get ahead of the curve. Keep an eye on our social media channels over the next month for some holiday surprises and remember to share our Tech Month Discounts.

Recruit a friend to bitcoin with 10% off the Trezor shop using promo code TECHMONTH2020


Where did Bitcoin come from? An introduction to the Bitcoin Whitepaper was originally published in Trezor Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

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