the Bitcoin whitepaper, explained and commented — section 2: transactions

In the previous installment, we introduced the general issues encountered with digital cash: mainly, how to solve the double-spending problem without relying on a trusted authority? Satoshi Nakamoto’s solution is to decentralize: to use a peer-to-peer network to record all transactions. How to do that is what we’re discovering now in section 2: transactions. The quoted paragraphs are from Nakamoto’s whitepaper.

We define an electronic coin as a chain of digital signatures. Each owner transfers the coin to the next 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.

There’s quite a bit to unpack here. First, the idea that a coin is a chain of transactions. A transaction is nothing more than a payment. In its most basic form: Alice owns a coins, but now she gives it to Bob. How to transcribe this change of ownership?

Nakamoto relies on the well proven methods of “public key cryptography”, such as pairs of public and private keys. Cryptography in general in the science of exchanging secrets. Public key cryptography is a 20th century theory that provides tools to do that very reliably using math problems that are difficult to…